Tuition and fees reimbursed in following year

[winnie]

Taxpayer has qualified educational expenses paid in 2006, which covers fall semester and spring semester payments. Spring semester started in Jan. His employer reimburses him for 90% after he turns in his good report card. In 2007, he has received reimbursement for the fall and anticipates being reimbursed after completion of spring semester.

Can we take the deduction in one year, add it back on line 21 as income the year of reimbursement? And we know he was reimbursed for the fall semester, but it seems like there is some uncertainty regarding the spring reimbursement.

Thanks for the help. I know all are busy and really appreciate the time taken from your work!

[Luis Mopeo]

Taxpayer has qualified educational expenses paid in 2006, which covers fall semester and spring semester payments. Spring semester started in Jan. His employer reimburses him for 90% after he turns in his good report card. In 2007, he has received reimbursement for the fall and anticipates being reimbursed after completion of spring semester.

Can we take the deduction in one year, add it back on line 21 as income the year of reimbursement? And we know he was reimbursed for the fall semester, but it seems like there is some uncertainty regarding the spring reimbursement.

Thanks for the help. I know all are busy and really appreciate the time taken from your work!

TTB, p. 12-8:

"If a refund or reimbursement of qualified education expense is received before filing a tax return, reduce qualified expenses by the amount of the refund before calculating the credit.

"If a refund or reimbursement is received after the credit has been claimed, the credit is subject to recapture in the year of the refund. Refigure the credit as if the refund was received in the year the credit was claimed. Subtract the amount of the regfigured credit from the amount of the credit claimed. In clude the different in the total tax on line 44, Form 1040..."

I know you're talking about the tuition and fees deduction, but the same principle applies according to Pub 970. If the reimbursement comes after the return is filed, refigure the tax on the return it was originally claimed on, and add the difference to next year's tax.

[Snaggletooth]

Deduction, not credit?

Winnie may have been asking about a Schedule A deduction for Education, or maybe a business deduction, and not a credit.

The educational expenses for Schedule A must be reduced for anticipated reimbursements as Luis has outlined. However, if the employer has a tuition refund program, the reimbursement won't appear on the W-2 as this is considered exempt compensation.

There are restrictions about expenses paid out of exempt income (similar to a preacher paying housing interest out of his housing allowance), but I don't know whether the tuition qualifies or not. It's hard enough already to deduct education with a 2% threshhold.

[Chief]

Reimbursement

There is a price to be paid for being so darn competent and efficient.

[winnie]

Thanks for taking the time to respond. I know it is crazy for all right now!

[Bill Tubbs]

deduct the difference

Taxpayer has qualified educational expenses paid in 2006, which covers fall semester and spring semester payments. Spring semester started in Jan. His employer reimburses him for 90% after he turns in his good report card. In 2007, he has received reimbursement for the fall and anticipates being reimbursed after completion of spring semester.

Can we take the deduction in one year, add it back on line 21 as income the year of reimbursement? And we know he was reimbursed for the fall semester, but it seems like there is some uncertainty regarding the spring reimbursement.

Thanks for the help. I know all are busy and really appreciate the time taken from your work!

Since you know some has been reimbursed, just deduct the unreimbursed portion in 2006.

I had a client that figured they would get reimbursed for some of the tuition at the conclusion of the degree program but did not know how much -- so, for a couple years we deducted the full amount of tuition. Then when she did see reimbursement, we had to figure the add-back in the year of reimbursement. If we had known how much she would have been reimbursed, we would have used the net amount for simplicity sake.

Bill