Instructions:

Enter basic filing information and facts about the taxpayer and student in the Taxpayer Information tab. This will help determine eligibility for the various education credit options and information needed for calculations in the Optimizer tab.

If the student is receiving scholarship funds or financial help from Coverdell ESA, Qualified Tuition Plans (529 Plans), Early IRA distributions or Savings Bonds used for tuition and fees, enter the amounts in the Funding Sources tab. One input option allows you to make a part of the scholarship taxable which may increase education or other benefits and result in a higher refund (or lower amount owed). This field is also used by the Optimizer. If a dependent child student falls within the criteria to trigger a kiddie tax, the amount made taxable is limited to prevent that. Similarly, a dependent relative student's taxable income is limited to that which would no longer allow them to be a dependent. If the dependent has any income, enter it in the dependent's tax form in the Optimizer tab so that it will be taken into account for these limits. Note that "qualified expenses" for using a funding source tax-free may vary with the source and may also be different than the "qualified expenses" for tax credits which also differ depending on the credit type. Unrestricted scholarships can be used for living expenses if the student is willing to make those amounts taxable.

Then enter education expenses in the Expense Information tab. The columns to the right will show what expenses qualify for the American Opportunity Credit, Lifetime Learning credit, or for Tuition and Fees adjustment. A check-mark to the left of each expense catagory indicates funds that can be used for the funding amounts in the Funding Sources tab (scholarship amounts used will be taxable). An option in the qualified expenses row, allows you to use all available funds to be spent on the qualified expenses (often results in no additional taxable income) or to use only the amount that covers expenses over that allowed for the particular credit (usually results in additional taxable income which may be offset by the use of the credit). The bottom two rows show the amounts that can be used in the taxpayer's return and the amount of unused scholarship funds that are taxable.

The Manual Comparison tab gives instructions on how to conduct a "what if" for each of the education options using TaxSlayer and a place to record and compare the results. Because it uses TaxSlayer to do the calculations, all the taxpayer's information is used and the calculation is the most accurate. Of course, you have to adjust the taxable amount in the Funding Sources tab manually too (ugh).

The Optimizer tab takes a bit more data entry and shows a detailed comparison for each option and it's effect on various other credits. To make data entry reasonable, it must be used with TaxSlayer and does not account for all factors as the manual comparison does (that would require duplicating the entire return). Randomly changing the amounts in the entered fields may result in nonsensical results in the other columns because the fields used rely on certain TaxSlayer calculations. The results are the estimated amount of change to the taxpayer's refund (or tax owed) for each option based on the original return figures.
For years other than 2018 and 2019, the optimizer prevents activating the "Kiddie Tax" due to the complexity and interactions with the parent's tax return. In 2018, that complexity was alleviated by using the Trust tax rates when the Kiddie Tax threshhold was crossed, making the calculation more straight-forward but the change was rescinded for tax year 2020. 2018 and 2019 may be amended to use the original method (but is OUT OF SCOPE).

Clicking the optimize button below the results modifies the amount of scholarship amount to be made taxable, seeking a better result.
Optimizer interactions with several items have not (yet) been included - some may never be. Among these are: As an example of how the optimizer works, try the following:
After using the calculator, consider printing a copy for the taxpayer's records. The "Print all" button will print all but the Instructions. If you want that as well, print from this page.

About security: Although you are entering a lot of taxpayer information in this calculator, none of that data is going to the web - it's all being calculated on your desktop, is not saved, and disappears when you exit the calculator. If you print the form, use the same care as you would if you were printing the taxpayer's return.
Please send email to Jeff Bogart with suggestions/corrections

Taxpayer Information:
Taxpayer's Name:
Tax Year: Filing in: 48 states   Alaska   Hawaii
Filing Status:
Only for return of WH 		TP is: 65 or older   Blind   Non-res Alien
SP is: 65 or older   Blind   Non-res Alien
Total dependents claimed:
Dependents qualified for EIC:
Dependents qualified for CTC:
   Dependents under age 6: (if qualified for CTC)

Student Information:
(Hover the mouse over the questions for a more detailed explanation.)
 
Is the student the TP, SP or a dependent claimed by this TP? Dependent TP or SP
  Is the TP or SP a parent of this dependent? Yes No
    Was at least one parent alive at the end of the tax year? Yes No
  What was the student's age at the end of the tax year? 16- 17 18 19-23 24 25+ Disabled
  What is the dependent student's filing status? Only for return of WH Spouse is itemizing deductions
Student: 65 or older Blind Non-res Alien
Spouse: 65 or older Blind Non-res Alien
  Is the TP or SP claimed on another person's return? Yes No
    Was the student's earned income less than one-half of their support? Yes No (Scholarships are not considered support)
    Was at least one parent alive at the end of the tax year? Yes No
Is the student a degree or other credential candidate? No Degree Other credential
At what level of time is the student enrolled? Full-time Half-time Less than half-time
  Are course(s) taken to acquire or improve job skills? Yes No
At the beginning of the tax year, had the student completed the first 4 years of postsecondary ed? Yes No
Has the student used American Opportunity Credit for 4 years? Yes No
Was the student ever convicted of a drug felony? Yes No
The taxpayer is qualified for:   American opportunity credit:
- refundable part:
  Lifetime learning credit:
  Tuition and fees adjustment:
The student is subject to the "Kiddie Tax" if the student's unearned income is greater than $ and the student is required to file a return other than to recover estimated or withheld taxes.

Funding sources:
Scholarships:
★ Unrestricted grants and scholarships that can be used for living expenses:
★ Other scholarships/fellowships:
- Amount used for teaching, research, etc. (not including NHSCSP or AFHPSFAP):
Was a W-2 issued for this income? Yes No
 
- Amount restricted (required to be spent on anything other than qualified education expenses):
- Amount (up to ) that you wish to make taxable for possible larger tax benefit:  ?  You can manually change this amount to see how the funds are distributed in the Expense Information tab. It is initially set to 0 to allow all funds to be used for qualified expenses.

The Optimizer tab changes this amount as it seeks the best amount to be taxable based on interactions with other tax benefits. You may limit the amount tested if you wish to do so in the next entry...
- - - Limit the taxable amount tested by the optimizer tab to:
Amount available tax-free for education expenses:

Supplemental Funding:
★ Distributions from Coverdell Education Savings Accounts (ESA):
★ Distributions from Qualified Tuition Plans (529 plans):
★ Early distributions from IRAs (with no early distribution penalty):
★ Savings bonds used for tuition and required enrollment fees (with tax-free interest):
Amount of non-personal funds to be allocated to education expenses:

The entire scholarship is taxable because the student is not a degree/certification candidate.
Coverdell ESA and 529 Plan funds are taxable with additional 10% penalty because the student is not at least a half-time degree/certification candidate.

Education Expenses:
 ✔ Check marks indicate expenses allowed for scholarships or other funds.
↓
 Check the box if the scholarship can be used to pay for the expenses without being taxed:
Expense category Amount American Opportunity Lifetime Learning Tuition & Fees
Tuition:
Student activity fees if required for enrollment:
Required books which must be purchased from the institution:
Required books purchased from a bookstore or second hand:
Required supplies and equipment fees which must paid to the institution:
Required supplies and equipment fees NOT paid to the institution:
Living Expenses:
Required insurance or student health fees:
Expenses for special needs services:
Transportation or parking fees:
Sports:
Games, hobbies, non-credit courses:
Clerical or research fees or expenses:
Total nonqualified education expenses:
Nonqualified education expenses that can be used:
Amount from funds used:
Total qualified education expenses:
Amount from funds used: (Use maximum Cover the difference)  ?  Use maximum allocates all scholarship(s) available, after any designated as taxable in the funding sources tab, to qualified expenses before diverting allowed amounts to nonqualified expenses. The optimizer uses this option as it cycles through taxable amounts.

Cover the difference is a single test case that diverts allowed amounts to nonqualified expenses in an amount to bring qualified expenses up to that allowed by law before allocating the remainder to qualified expenses. Due to interactions with other tax benefits, this may not be the best solution but often is.
Maximum qualified expenses allowed for tax benefit by law:
Qualified education expenses for TP's tax return:
Additional taxable income for the student:
 
Is it worth trying to use the Optimizer tab?

Education Option Worksheet 1 - manual comparison

This worksheet provides a place for comparing the various education options.
You can also use the Optimizer tab's Worksheet although it has limitations.

Education credits are entered in TaxSlayer at: Federal Section > Deductions > Credits Menu > Education Credits (Form 1098-T)
Taxable scholarships are entered in TaxSlayer at: Federal Section > Income > Other Income > Other Compensation > Scholarships and Grants
  1. Check the taxpayer's AGI against the credit limit table below to see for which, if any, the taxpayer qualifies.
  2. Enter the current Refund Monitor amounts in the Tax return amount column (prior to these education expenses).
  3. For each education option, enter the amounts into TaxSlayer, record the Refund Monitor amounts. Test the Tuition & Fees option first since the required school information for the others will be erased when that option is chosen.
Tax return amount American Opportunity Lifetime Learning Tuition & Fees
TaxSlayer Federal Refund:
TaxSlayer State Refund:
Change in total refund amount:
Choose the green option, or choose none if the original amount is green.
Benefit limits
Benefit AGI Range Amount
American opportunity credit 0  -  4,000
 -  decreases to 0
 -  0
Lifetime learning credit 0  -  10,000
 -  decreases to 0
 -  0
Tuition and fees deduction 0  -  4,000
 -  2,000
 -  0
Earned income tax credit 0  -  increases to 
?  -  ? ?
?  -  ? decreases to 0
?  -  0

Education Option Worksheet 2 - calculated comparison
NOTE: This worksheet must be used in conjunction with TaxSlayer because it relies on TaxSlayer to do many of the calculations. Simply adjusting input numbers at random will produce nonsensical results. This worksheet will not give reliable results if the taxpayer has any of the items listed in the Instruction tab.
Education credits are entered in TaxSlayer at: Federal Section > Deductions > Credits Menu > Education Credits (Form 1098-T)
Taxable scholarships are entered in TaxSlayer at: Federal Section > Income > Other Compensation > Scholarships and Grants
Taxpayer's return:
Tax return field Form and line
number		 Tax return
amount		 American
Opportunity		 Lifetime
Learning		 Tuition &
Fees
Calculated scholarship income TS Schol & Grants
Wages, Salary and Tips 1040 line 7
Business Income 1040 line 12
Self employed health insurance 1040 line ??
Earned Income 1040 lines 7+12
Tuition and fees adjustment 1040 line 34
AGI 1040 line 7
Unreimbursed medical expenses ( SP 65+) Sched A line 1
Itemized deduction amount (used or not) Sched A line 29
Qual Div & Cap Gn Wkt pg 1 line ?? QD&CG Wkt line ??
   Deduction amount 1040 line 40
QBI deduction amount 1040 line ??
Tax amount: 1040 line 44
Form 8962 line 10A ( months) 8962 line ??
Form 8962 line 10B 8962 line ??
Form 8962 line 10F 8962 line ??
Excess advance premium tax credit repayment 1040 line ??
Nonrefundable credits:
   Actual foreign tax paid 1116 top
      Foreign tax credit TS Foreign Tax Credit
   Allowed child and dependent care expenses 2441 line  6
      Credit for child and dependent care expenses 1040 line ??
   Education credits 1040 line ??
   Allowed retirement saving contribution 8880 line 10
      Retirement saving contribution credit 1040 line ??
   Child and other dependents Tax Credit 1040 line ??
Total Nonrefundable Credits 1040 line ??
Refundable credits:
Earned income credit (check "No" if not qualfied  ?  ) Not qualified if any of the following:
  • TP is student and age less than 25 or greater than 64 and no children
  • Investment income (Interest + Tax-free interest + Dividends + Capital gains) more than $limit
  • Married filing seperately
  • TP or SP not have a SSN that allows to work and valid for EIC
  • TP or SP is a nonresident alien any part of the year
 No: 1040 line ??
Additional Child Tax Credit 1040 line ??
Refundable Child and Dependent Care Credit 1040 line ??
Refundable american opportunity credit 1040 line ??
Net premium tax credit 1040 line ??
Tax refund change on the taxpayer's return: 0 0 0

Student's return: ( Check to optimize using kiddie tax with trust tax rates)
Tax return field Form and line
number		 Tax return
amount		 American
Opportunity		 Lifetime
Learning		 Tuition &
Fees
Calculated scholarship income TS Schol & Grants
Wages, Salary and Tips 1040 line 7
Business Income 1040 line 12
Self employed health insurance 1040 line ??
Earned Income (not Total Income) 1040 lines 7+12
AGI 1040 line 7
Itemized deduction amount (used or not) Sched A line 29
Qual Div & Cap Gn Wkt pg 1 line ?? QD&CG Wkt line ??
   Deduction amount 1040 line 40
QBI deduction amount 1040 line ??
Tax amount: 1040 line 44
Nonrefundable credits:
   Total foreign tax paid 1116 top
      Foreign tax credit TS Foreign Tax Credit
Total Nonrefundable Credits 1040 line ?? 0 0 0 0
Tax refund change on the student's return: 0 0 0
Optimization results: ♥
Tax refund change on the taxpayer's return: 0 0 0
Tax refund change on the student's return: 0 0 0
Tax refund change due to the education option:
Pink options are poor choices. Choose the green option if there is one.
Additional taxable income for the student:
Qualified education expenses for TP's tax return:
Click the OPTIMIZE button to optimize using some scholarship funds as income for this tax return;
  this adjusts the amount taxed in the Funding Sources tab.


Cannot optimize. There are no nonqualified education expenses to which scholarship funds can be diverted.
Cannot optimize. There are no scholarships that can be used to pay for nonqualified expenses.
Cannot optimize. The student's AGI is too high to be a qualified dependent.
Cannot optimize. The student's unearned income is too high and the kiddie tax applies.
On taxpayer's return:
  - Most advantageous option:
  - Scholarship as income amount:
  - Education expense amount:
On student's return:
  - Scholarship as income amount:
Kiddie tax applies to the student's return:
  - Income amount taxed at standard Cap Gain rates: 0
      Tax amount = 0
  - Income amount taxed at trust Cap Gain rates: 0
      Tax amount = 0