How to Pay Taxes on Your Tuition Reimbursement
- 1). Check your W-2 to determine whether your tuition reimbursement was included as part of your income. If you were reimbursed in an amount below or at the federal deduction limit, then your employer should not include any of your reimbursement in Box 1 of your W-2. Tuition from your employer is tax deductible up to $5,250, as of 2010. All reimbursements above that amount are not tax deductible and are treated as income.
- 2). Deduct any amount above $5,250 that you paid out of pocket using the Hope Credit, American Opportunity Credit or Lifetime Learning Credit. The American Opportunity Credit extends the Hope Credit for taxpayers who may not qualify throughout 2010. The maximum Hope Credit is $2,500 while the maximum Lifetime Learning Credit is $2,000. You are allowed to deduct any tuition and fees paid on behalf yourself, your spouse or your dependents. To claim the credit, complete and attach Form 8863 and attach it to your Form 1040. You may also be eligible for the Tuition and Fees Deduction and would use IRS Form 8917 to figure the amount of your deduction. Generally, the tax credit would be of greater benefit than the deduction because a deduction reduces the amount of your income that is subject to federal income tax, while a credit directly reduces the amount of tax you pay. However, in this case, since the maximum Tuition and Fees deduction is $4,000, it may be more beneficial for you to take the deduction if you are eligible for the full amount. Also, the Tuition and Fees Deduction limits the deduction based upon income limits ($65,000 for single filers and $130,000 for joint filers).
- 3). Submit your returns electronically or mail your income tax return to the IRS office that processes returns for your area. If you are unsure which office processes returns for your region, visit the IRS website.
