Maximizing Your Tax Benefits With Form 1098-T

As education costs continue to climb, more students and families are looking for legitimate ways to offset the expense. Form 1098-T is one of the most useful documents for that purpose — it summarizes what you paid in qualified tuition and fees during the year and can support a claim for one of two federal education tax credits. Here’s an accurate, up-to-date breakdown of how the form works and how to use it, along with what it means for institutions handling 1098-T filing.

Understanding Form 1098-T

Eligible educational institutions are required to file Form 1098-T for each enrolled student for whom a reportable transaction occurred during the year, and to send a copy to the student. The form reports the total payments the school received for qualified tuition and related expenses (Box 1), along with scholarships or grants the school administered on the student’s behalf (Box 5), and indicators for at-least-half-time enrollment and graduate status.

Schools aren’t required to issue the form in every case — for example, when a student’s qualified expenses are entirely covered by scholarships, when the student is a nonresident alien who hasn’t requested one, when no academic credit is awarded for the course, or when expenses are covered under a formal billing arrangement with an employer or government entity (see the Instructions for Forms 1098-E and 1098-T for the full list of exceptions). If you should have received a 1098-T and didn’t, you can still claim an education credit as long as you can substantiate enrollment and payment some other way.

Tax Benefits Supported by Form 1098-T

There are two federal education credits, plus a separate deduction for student loan interest, that a 1098-T can help support.

American Opportunity Tax Credit (AOTC). Worth up to $2,500 per eligible student — 100% of the first $2,000 of qualified expenses plus 25% of the next $2,000. Up to 40% of the credit is refundable, meaning you can receive money back even if you owe no tax. To qualify, the student must be pursuing a degree or recognized credential, be enrolled at least half-time for at least one academic period during the year, not have completed the first four years of postsecondary education, not have claimed the AOTC (or the former Hope Credit) for more than four tax years, and not have a felony drug conviction. The credit phases out for taxpayers with modified adjusted gross income (MAGI) between $80,000 and $90,000 ($160,000–$180,000 for joint filers) and is unavailable above those upper thresholds.

Lifetime Learning Credit (LLC). Worth up to $2,000 per tax return — 20% of the first $10,000 in qualified expenses paid for all eligible students on the return. Unlike the AOTC, the LLC isn’t limited to the first four years of college or to degree-seeking students; it covers any year of postsecondary study, graduate and professional programs, and even courses taken just to improve job skills. There’s no minimum enrollment requirement and no cap on the number of years it can be claimed. The same income phase-out range applies as for the AOTC: $80,000–$90,000 MAGI for single filers, $160,000–$180,000 for joint filers.

You can only claim one of these two credits per student per year, though different credits can be claimed for different students on the same return.

Student Loan Interest Deduction. This is a separate tax break (not tied to Form 1098-T — it’s based on Form 1098-E from your loan servicer), but it’s worth knowing about alongside the credits above. It lets you deduct up to $2,500 in student loan interest paid during the year as an above-the-line deduction, meaning you don’t need to itemize to claim it. For 2025, it phases out for MAGI between $85,000 and $100,000 ($170,000–$200,000 for joint filers), and it isn’t available to taxpayers filing as married filing separately.

A note on the “tuition and fees deduction”: Older guidance (including outdated versions of this article) sometimes references a separate tuition and fees deduction worth up to $4,000. That deduction was repealed for tax years beginning in 2021 — it no longer exists. The Lifetime Learning Credit’s income limits were widened at the same time, partly to make up for its absence. If you see this deduction mentioned anywhere as a current option, treat it as outdated.

How to Use Form 1098-T to Maximize Your Benefit

Start by checking that the amount in Box 1 looks right. Box 1 only reflects payments the school actually received during the calendar year, which may differ from the total amount you can claim — Publication 970, Tax Benefits for Education walks through how to calculate your actual qualified education expenses, since the form itself may not capture everything you paid (for example, course materials bought outside the school for the AOTC). If something looks off, contact the school’s bursar or financial aid office before filing.

Keep your own paper trail — tuition invoices, receipts, and proof of payment — in case the IRS ever asks you to substantiate a credit. If a refund of qualified expenses comes through after you’ve already filed and claimed a credit, you may need to refigure the credit and report the difference on a later return.

Timing matters too: if you prepay spring-semester tuition in December for a term that starts in the first three months of the following year, that payment generally counts toward the year you paid it, which can be a useful way to shift expenses into a tax year where you’ll get more benefit from the credit.

Why Form 1098-T Accuracy Matters for Institutions

Schools and institutions that file Form 1098-T incorrectly or late can face IRS penalties, and inaccurate or missing forms can delay or jeopardize a student’s ability to claim an education credit. Because the form directly affects what students and families can claim on their tax returns, institutions — particularly those in higher education — benefit from having solid internal processes: validating data before submission, training staff on the current filing rules, and reviewing forms for accuracy before they go out to students and the IRS. For common questions institutions run into, the TAB1098-T FAQ & Resources page covers many of them.

Getting Help With Form 1098-T Processing

Outsourcing 1098-T preparation and e-filing is a common option for institutions that want to reduce the administrative burden and stay current with IRS requirements, which can change from year to year. A processing partner can typically handle data collection, validation, and electronic filing with the IRS, as well as delivering copies to students. Tab Service Company’s TAB1098-T service is built around that workflow. If you’d like to talk through your institution’s specific filing needs, you can contact Tab Service Company directly.

Bottom Line

Form 1098-T remains a key document for claiming the AOTC or LLC, but the rules around it shift periodically, and at least one previously common benefit — the tuition and fees deduction — is no longer available. When in doubt, check IRS Publication 970 (Tax Benefits for Education) or the IRS’s education credits page directly, since third-party guidance can lag behind changes in the law.