1098-T Reporting Season Reminders

October 20, 2011

Since passage of the Post-9/11 Veterans Educational Assistance Act of 2008 (Post 9/11 GI Bill), there has been confusion in the higher education community about the treatment of benefits provided by the Department of Veterans Affairs (VA) on the annual tuition payments information return, Form 1098-T. NACUBO has been seeking formal guidance from the Internal Revenue Service on this question, and expects it to be addressed by a change to the instructions accompanying the 2012 1098-T form.

The Post 9/11 GI Bill specifies that for financial aid purposes, VA benefits should not be considered a resource (either as income or a scholarship) to the recipient when need is calculated. Some colleges and universities have interpreted this to mean that they should not include those amounts in Box 5 of the 1098-T (where grants, scholarships, and tuition reduction amounts are reported).

IRS Publication 970, Tax Benefits for Education, indirectly addresses the issue, instructing taxpayers that amounts of GI Bill benefits earmarked for tuition and fees do not count as qualified payments against the federal education tax credits, indicating that for tax purposes, VA benefits should be treated as scholarships, grant aid, and tuition reductions. As such, these amounts should be reported in Box 5 of the Form 1098-T.

IRS is expected to add language to the 2012 Form 1098-T clarifying that colleges and universities should characterize VA and Department of Defense tuition benefits as scholarships and that they should be reported in Box 5. While these changes are not yet spelled out on the IRS website or the 2011 form or instructions, NACUBO recommends that institutions report those amounts in Box 5 of the 2011 Form 1098-T.

SSN Truncation

In related news, IRS has extended the pilot program enabling institutions to use a truncated Social Security Number (SSN) on paper statements provided to students. The extension covers tax years 2011 and 2012 and applies to most Forms 1098 and 1099. Note that the full SSN must be provided on forms provided electronically.