Learn About the 1098-T Tax Form

What the 1098-T Form Is and Why It Matters

The 1098-T form is a tax document that reports qualified education expenses paid by students during the tax year. The IRS uses this form to track education costs that may reduce the amount of taxes a person owes. Understanding what this form contains and how it connects to your taxes is an important part of managing education expenses.

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Educational institutions—colleges, universities, and eligible schools—send the 1098-T to students who paid qualifying tuition and related fees. The form shows how much money was spent on education in a given tax year. This information helps determine whether certain tax provisions related to education might apply to your tax situation.

The 1098-T became part of the tax system to recognize the financial burden of higher education. As education costs have risen significantly over the past few decades, tax provisions have been developed to help offset some of these expenses. According to the National Center for Education Statistics, the average cost of tuition and fees at public four-year institutions reached approximately $9,750 for the 2022-2023 academic year, while private nonprofit institutions averaged around $38,070.

Two main education tax provisions exist in the current tax code: the American Opportunity Tax Credit and the Lifetime Learning Credit. These are not the same as deductions—they directly reduce the tax owed, which makes them more valuable. The 1098-T form provides the documentation needed to report these credits on your tax return.

Not every education expense appears on a 1098-T, and not every student receives one. Understanding which expenses qualify and when a school must issue the form helps you know what to expect and how to organize your education-related tax information.

Practical Takeaway: Request a 1098-T from your school if you paid qualified education expenses during the tax year. Even if you don't receive one automatically, you can ask your school's financial aid office for a copy or confirmation of your qualifying expenses.

Which Expenses Show Up on the 1098-T Form

The 1098-T reports specific categories of education expenses. Not all education costs qualify, which is an important distinction to understand. Schools report only those expenses that meet IRS standards for qualified education expenses.

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Qualified tuition and required fees are the primary expenses that appear on the form. Tuition is the cost to attend the school, while required fees are charges that all students must pay as a condition of enrollment. Examples include student activity fees, technology fees, and lab fees that are mandatory for all students. These two categories make up the bulk of what most 1098-T forms report.

Books, supplies, and equipment may be included if they are required for attendance. A school might report the cost of a required textbook or a required computer if the institution mandates the purchase. However, the student must have purchased these items during the tax year in question. If a student bought books in one year but used them in another, those expenses would be reported in the year they were purchased.

Room and board expenses do not appear on the 1098-T, even though they are education-related costs that students incur. Similarly, transportation, personal expenses, and optional supplies are not reported. Student loan interest is also handled separately on a different tax form (the 1098-E). Health insurance, even if the school requires it, typically does not appear on the 1098-T.

The form reports expenses paid during the tax year, regardless of which year's courses the expenses were for. For example, if a student paid tuition in December 2024 for spring semester 2025 classes, that amount appears on the 2024 1098-T.

Box 1 on the form shows qualified tuition and educational fees. Box 2 displays scholarships or grants that the school administered. Understanding what goes in each box helps you read the form correctly and determine how it might connect to your tax situation.

Practical Takeaway: Review your 1098-T carefully and compare it to your actual education expenses. If you believe qualified expenses are missing or reported incorrectly, contact your school's financial aid office to request a corrected form before filing your tax return.

How Scholarships and Grants Affect Your 1098-T

Scholarships and grants reduce the amount of education expenses that may be used with certain tax provisions. This is a critical piece of information because it affects how much tax benefit you might receive. The 1098-T reports scholarship and grant amounts separately from qualified expenses, which allows you to calculate the true out-of-pocket cost.

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Box 2 of the 1098-T shows scholarship or grant amounts paid by the school to the student or applied directly to education expenses. This includes scholarships from the school itself, grants from the school, and scholarship funds that the school administered on behalf of outside organizations. Not all scholarship money goes through the school, so some scholarships may not appear on this form.

When a scholarship or grant covers education expenses, that portion of the expenses cannot be counted as out-of-pocket costs for tax purposes. For example, if a student's tuition is $10,000 and the school gives a $3,000 scholarship that covers part of it, only the $7,000 paid by the student (through loans, personal funds, family contributions, or other sources) counts as a qualified expense for tax purposes.

Scholarships that were taxable income to the student are treated differently than scholarships that were not taxable. The IRS publication 970 provides detailed guidance on how to handle different types of scholarships. Generally, scholarships used for tuition and fees are not taxable to the student, but scholarships used for room, board, or other non-qualified expenses may be taxable.

It is possible for a student to have a 1098-T that shows $15,000 in qualified expenses but also shows $8,000 in scholarships. In this scenario, the student would count $7,000 in out-of-pocket qualified expenses. This calculation matters significantly when determining whether to use the American Opportunity Credit, the Lifetime Learning Credit, or neither.

Some scholarships do not appear on the 1098-T because they were not administered by the school. External scholarships from private organizations, employers, or community foundations may not be reported. Students should keep records of all scholarships received and note which ones covered education expenses versus other costs.

Practical Takeaway: Gather documentation of all scholarships and grants you received. Compare this information to Box 2 on your 1098-T to ensure the numbers match. If you received external scholarships, track those separately since they won't appear on the form but still affect your out-of-pocket expense calculation.

Understanding the American Opportunity Credit and Lifetime Learning Credit

Two federal tax credits relate directly to education expenses reported on the 1098-T. These credits are not the same as deductions. A tax credit reduces your tax liability dollar-for-dollar, making it more valuable than a deduction of the same amount. The American Opportunity Credit and the Lifetime Learning Credit serve different purposes and have different rules.

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The American Opportunity Credit allows up to $2,500 per student per tax year (as of 2024) for qualified education expenses. This credit is available to students pursuing a degree or certificate at an eligible institution. The student must be enrolled at least half-time during at least one academic period in the tax year. Up to $1,000 of this credit is refundable, meaning you could receive it even if you owe no taxes. The remaining $1,500 is nonrefundable.

To receive the American Opportunity Credit, your modified adjusted gross income must be below certain limits. For the 2024 tax year, the phase-out range begins at $80,000 for single filers and $160,000 for married filing jointly. If your income exceeds these ranges, the credit phases out and eventually becomes unavailable.

The Lifetime Learning Credit allows up to $2,000 per tax return (not per student) for qualified education expenses. This credit applies to any course at an eligible institution, not just courses toward a degree. The student does not need to be enrolled full-time or pursuing a specific credential. However, this credit is nonrefundable, meaning it only reduces taxes owed, not providing any refund if the credit exceeds your tax liability.

The Lifetime Learning Credit uses the same income phase-out ranges as the American Opportunity Credit.