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. Recent changes in the tax code now guarantees that the American Opportunity Credit is always better than the Lifetime Learning Credit, so only the best option is shown.

If the student is receiving scholarship funds or financial help from Coverdell ESA, Qualified Tuition Plans (529 Plans) or Employer-provided educational assistance, Early IRA distributions or Savings Bonds used for tuition and fees, enter the amounts in the Funding Sources tab.

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 or the Lifetime Learning credit. A check-mark to the left of each expense catagory indicates that there are funds that can be used for the funding amounts in the Funding Sources tab (scholarship amounts used may 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 Optimizer tab takes a bit more data entry and shows a detailed estimate for the best option and its effect on various other credits. To make data entry reasonable, it must be used with TaxSlayer and does not account for all factors (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) based on the original return figures.
The optimizer prevents activating the "Kiddie Tax" due to the complexity and interactions with the parent's tax return.

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 its ripple effect with other items.
Significant 1250 gain and 28% gain dividend income (doesn't account for different tax rates)
QBI calculations for 199A dividends
Significant tax-free interest relative to other investment income
Education expenses deductible on Schedule C
Effect of an IRA deduction due to change in income
Effect of student loan interest deduction due to change in income
Reduction of exemption amount for high income taxpayers
Employer provided child care benefits, carryovers, prior year expenses
Schedule R reduction of the education credit
Effect on state tax returns

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

In tax year 2022, 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 earned income of $24,500 for the year.
George has received an unrestricted grant of $4,000, used to pay for his $4,000 tuition and $500 for books.

Without optimizing, the entire grant is used to pay for the tuition, they owe no tax and they will receive a refundable $200 for AOC, $1500 for ACTC and $3,733 earned income credit. Sounds pretty good, right?
But if you optimize, using $4,000 as room and board expenses, you will find that they will now have to pay a little tax by declaring $1,794 taxable, but will gain an additional $828 by receiving $830 in AOC and $39 education credit, which offsets the resulting tax and the decrease (-$2) in the earned income credit. 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 actual tax return.

Please send email to tools@cotaxaide.org with suggestions/corrections

Benefit limits	AGI Range	Expense Amount
Lifetime learning credit	0	-	10,000
American opportunity credit	0	-	4,000
		-	decreases to 0
		-	0

Funding sources:

Enter below all sources of funds, other than personal, used to pay for education expenses .
Scholarship names are not required but may be helpful if there are more than one
Enter employer-provided educational assistance funds as a restricted scholarship
Hover over each supplemental funding source to view the expenses for which each source can be spent.
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.
IMPORTANT: Go to the Optimizer tab and enter income information, if any, on the Student's tax return to make sure they are not subject to the kiddie tax.

Scholarships, Fellowships and Grants	Check if unrestricted	Amount




Adjustments to above due to required use of funds... ( Check box to enter amounts.)
- Amount used for teaching, research, etc. (not including NHSCSP or AFHPSFAP):
Was a W-2 issued for this income?		Yes No
- Amount required to be spent on anything other than qualified education expenses):
Total scholarship funding:

Supplemental Funding:
Distributions from Coverdell Education Savings Accounts (ESA):
Distributions from Qualified Tuition Plans (529 plans):
Employer-provided educational assistance:
Early distributions from IRAs (for education, with no early distribution penalty):
Savings bonds used for tuition and required enrollment fees (with tax-free interest):
Total supplemental funding

Amount of 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 other 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 "maximize expenses" and allow the rest to be taxable and thus qualify for the tax credit.
If range figures in the All other expenditures line are shown, the first figure is the amount of scholarship that has not been allocated. The second figure is the maximum amount that could still be diverted to that line for advantage (not necessarily optimal).

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

	Expense category	American Opportunity	Lifetime Learning
↓	Check the box if the scholarship or other funds can be used to pay for the expenses:
	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:
	Room and board (may be limited by school or scholarship terms):
	Insurance or student health fees:
	Expenses for special needs services:
✔	All other expenditures (travel, entertainment, support for others, etc):

	Total expenses not qualified for the credit:
	Nonqualified education expenses that are not taxable:
	Funds that can be used for nonqualified expenses:
	Amount from funds used:

	Total education expenses qualified for the credit:
	Amount from funds used: (Use all funds Maximize expenses) ? Use all 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. Maximize expenses 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 the credit by tax law:
	Amount used for IRS qualified expenses but not allowed for credit: ? Although not allowed for a benefit, some items may still be an IRS qualifed expense that can be paid without being taxed.	0	0
	Amount of education expenses for TP's tax return:
	Additional taxable scholarship income for the student:

On taxpayer's return:
- Most advantageous option:
- Other income > Other Compensation > Scholarships amount¹:
- Education tuition amount:
- Education scholarship amount²:
- Education expense amount³:

On student's return:
- Other income > Other Compensation > Scholarships amount¹:

¹ Amount of scholarship that is being taxed.
² Amount of scholarship that is being used for qualified expenses.
³ Total qualified expenses () less tuition ().

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.

No.

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.

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.

Calculated optimization

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

Complete the taxpayer's tax return except for the education credits.
Enter the information from the taxpayer's tax return below.
If the student is a dependent:

Begin a tax return for the student if they have any income.
Enter data from their tax return in the student's section below. Do not include scholarships or grants as income – that will be calculated.

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.
Add the scholarship information into the tax returns.
For additional students, change all taxpayer entries to reflect inclusion of previous students' education choice(s) and repeat the above process. If one of the students is the taxpayer (or spouse), do that one first because it affects their tax return more than dependents do.

Taxpayer's return:

Tax return field	Form and line number	American Opportunity	Lifetime Learning
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
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 qualified ? ) 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 american opportunity credit	1040 line ??
Net premium tax credit	1040 line ??
Tax refund change on the taxpayer's return:		0	0

Student's return:

Tax return field	Form and line number	Tax return amount	American Opportunity	Lifetime Learning
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
Tax refund change on the student's return:			0	0

Optimization results: ♥

Tax refund change on the taxpayer's return:	0	0
Tax refund change on the student's return:	0	0
Tax refund change due to the education option:

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.

Cannot optimize. Scholarship funds are greater than expenses.

On taxpayer's return:
- Most advantageous option:
- Other income > Other Compensation > Scholarships amount¹:
- Education tuition amount:
- Education scholarship amount²:
- Education expense amount³:

On student's return:
- Other income > Other Compensation > Scholarships amount¹:

¹ Amount of scholarship that is being taxed. (Manually adjust: )
² Amount of scholarship that is being used for qualified expenses.
³ Total qualified expenses () less tuition ().

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:

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: