Education Calculator

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 prior to 2018, 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.

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:

Effect of taxable amount of Social Security due to change in income and it's ripple effect with other items.
Significant 1250 gain and 28% gain dividend income (doesn't account for different tax rates)
Significant tax-free interest relative to other investment income
Education deductible on Schedule C - see the Education Cookbook
Effect of an IRA deduction due to change in income
Effect of Student loan interest deduction due to change in income
Education deductible on Schedule A - see the Education Cookbook
Employer education assistance benefits
Reduction of exemption amount for high income taxpayers
Employer provided child care benefits, carryovers, prior year expenses
Shared Responsibility Payment required of the taxpayer
Income deductions on the student's return when the student is a dependent of the TP
Unearned income other than that calculated here for a dependent subject to the kiddie tax
Effect on state returns

As an example of how the optimizer works, try the following:

In tax year 2015, George is a 25 year old taxpayer attending a school half time that qualifies for the American opportunity credit. He and his wife Sally have one child and they earned income of $21,000 for the year.
George has received an unrestricted grant of $7,000, used to pay for his $3,000 tuition and $1,000 for books which he bought second hand and $8,000 that they used for living expenses.

Without optimizing, you will find that they will lose $63 in earned income credit due to the increased AGI ($3,000 for the housing expense is taxable) and since his expenses were paid, there's no AOC.
When you do optimize, you will find that they will have to pay a little more tax by declaring $4,999 taxable, but will gain $425 by receiving $939 in AOC which offsets an additional decrease in the earned income credit and then some. To see what's happening, .

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

Funding sources:

Enter below all sources of funds, other than personal, used to pay for education expenses .
Hover over each starred source to view what expenses that each source can be spent on tax-free.
Early distribution of IRA funds is considered as personal funds and not included in the calculations. However, a warning message is displayed if all the funds cannot be used.
Savings bond amounts are not included in the calculations because they do not affect the outcome. However, a warning message is displayed if the bond amount exeeds the education expenses (for tuition and fees) after other sources have been used.
IMPORTANT: Go to the Optimizer tab and enter income information, if any, on the Student's tax return.

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:

Enter expenses as you wish to claim them below, regardless of how the institution granting a scholarship actually used the funds.
Do not include the part of the scholarship that was required to be used for non-qualifed education expenses nor the expenses covered by those funds.
Tax credits are based on qualified education expenses payed for the taxpayer, spouse, or a dependent who is claimed as an exemption on the tax return.
The credit is allowed for qualified education expenses paid in the current tax year for an academic period beginning in that year or in the first 3 months of the following year.
Include any required computer and internet expenses in the required supplies and equipment fees category. If not required, include it in living expenses.
Funding amounts in excess of allowed expenses for that type of funding (check marks below) is taxable income to the student.
If the funds available exceed the limit for the tax credit, it may be advantageous to only use the amount of funds to "cover the difference" and allow the rest to be taxable and thus qualify for the tax credit.

✔ Check marks indicate expenses allowed for scholarships or other funds.

	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:
	Expenses for special needs services:
	Sports:
	Games, hobbies, non-credit courses:
	Living Expenses:
	Insurance, student health fees, transportation, clerical or research:

	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?

Perhaps.

If the dependent student had any other income, you must use the Optimizer tab to enter that income to avoid any possible kiddie tax.

Because expenses exceed scholarships, there is no point in optimizing however, you can still use the optimizer to view the option details

Because there are no unqualified expenses, there is no point in optimizing however, you can still use the optimizer to view the option details

Although there are no scholarships that can be diverted to certain nonqualified expenses, you can still use the optimizer to view the option details

Expenses exceed scholarships by more than the limit for American Opportunity Credit. There is no point in optimizing if that is your best choice.

Expenses exceed scholarships by more than the limit for Lifetime Learning Credit. There is no point in optimizing if that is your best choice.

Expenses exceed scholarships by more than the limit for Tuition and Fees Adjustment. There is no point in optimizing if that is your best choice.

Because one or both of the taxpayers is over age 65, the results of the optimizer may not be exact if there are interactions with untaxed social security benefits.

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.
For additional guidance, especially for work-related education benefits, see Deb Fisher's Education Cookbook.

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

Check the taxpayer's AGI against the credit limit table below to see for which, if any, the taxpayer qualifies.
Enter the current Refund Monitor amounts in the Tax return amount column (prior to these education expenses).
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.

For the Tuition and Fees adjustment:

Use qualified expenses of 0 for TP's tax return

and enter the Additional taxable income of 0.

record the Refund Monitor amount and remove the above entries.

For the American opportunity credit:
- Use qualified expenses of 0 for TP's tax return.
- record the Refund Monitor amount and remove the above entries.
For the Lifetime Learning credit:
- Use qualified expenses of 0 for TP's tax return.
- record the Refund Monitor amount and remove the above entries.

	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

For the first student, enter the information from the taxpayer's return before the education choice is made.
If the student is a dependent, go to the student's return below and enter data from their return as well.
For subsequent students, change all entries to reflect inclusion of previous students' education choice(s).
Estimated values for each option will then be shown in the columns on the right.
Finally, click the optimize button at the bottom to see if taxing part of the scholarship gives better results.

Taxpayer's return:

Tax return field	Form and line number	American Opportunity	Lifetime Learning	Tuition & Fees
Calculated scholarship income	TS Schol & Grants
Earned Income (not Total 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
Deduction amount	1040 line 40
Qual Div & Cap Gn Wkt pg 1 line ??	QD&CG Wkt 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 Family 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: 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 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: ( Allow kiddie tax)

Tax return field	Form and line number	Tax return amount	American Opportunity	Lifetime Learning	Tuition & Fees
Calculated scholarship income	TS Schol & Grants
Earned Income (not Total Income)	1040 lines 7+12
AGI	1040 line 7
Itemized deduction amount (used or not)	Sched A line 29
Deduction amount	1040 line 40
Qual Div & Cap Gn Wkt pg 1 line ??	QD&CG Wkt 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 this 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

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 claimed for EIC:
Dependents claimed 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+ 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 your earned income less than one-half of your 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: