Tuition Credit Question

[Deleted]

I'm helping my friend with her taxes and she has a 1098-T for 2012 that she received for classes she's taking part-time towards her bachelor's degree while she works full-time.  She already has her associate's degree and is furthering her education to advance in her career.  Her employer will be reimbursing her 80% of the tuition (nontaxable) but not until she's completed and passed the course, which won't be until 2013.  My question is, does she use 100% of the tuition as shown on the 1098-T for the education credit calculation or does she reduce it by the amount her employer will be reimbursing her in 2013?  Additionally, her mother was able to take the American Opportunity Credit while my friend got her associates degree but that doesn't mean my friend can't take the tuition credit now that she's going back to school - right?  Thanks for your help! 

[Rocky Mtn Saver]

Under current rules, I believe you can take the American Opportunity Credit for any 4 years as an undergrad, but no more than that. So it depends on how many years her mother claimed the AOC. I'll be interested to see what the more experienced folks here think on the late tuition reimbursement issue. I may run into that myself.

[Deleted]

I think I may have found an answer in Pub 970.  Would someone please read and help me interpret this?  I hate that I can't figure it out myself.....

"If any tax-free educational assistance for the qualified education expenses paid in 2012 or any refund of your qualified education expenses paid in 2012 is received after you file your 2012 income tax return, you must recapture (repay) any excess credit. You do this by refiguring the amount of your adjusted qualified education expenses for 2012 by reducing that amount by the amount of the refund or tax-free educational assistance. You then refigure your education credit(s) for 2012 and figure the amount by which your 2012 tax liability would have increased if you had claimed the refigured credit(s). Include that amount as an additional tax for the year the refund or tax-free assistance was received." 

I just found out tonight, however, that the reimbursement from her employer will be taxed.  Does that change the above since it talks about tax-free education assistance?

[mwcpa]

"however, that the reimbursement from her employer will be taxed. Does that change the above since it talks about tax-free education assistance?"

If she is getting a "taxable" benefit then it is not tax free..... she is not getting a tax free assistance nor is she getting a refund.....she is getting a taxable bonus from her employer.

[Deleted]

So that means what was reported to her on the 1098-T is the number used for the calculation of the tuition credit and the fact that she will be reimbursed 80% of that amount in by her employer in the next year doesn't matter since it's taxed?  I understand what you're saying, it just seems like she's getting more of a credit than she should.  I appreciate your help!

[mwcpa]

If she is paying tax on the 80% reimbursement what tax benefit is she getting?  None.

If the 80% reimbursement is free of tax or pre-tax then you have a "recaputure" situation...that would be a double dipping situation.

[Deleted]

Gotcha!  Thanks so much!!