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Must I use the taxable portion of employer education assistance to offset my expenses for the lifetime credit?
My expenses (tuition and such were about $17500) while I received about $16000 in employer education assistance. Now I know that the tax free portion of this assistance (5250) must be used to offset these expenses but does the rest of the assistancce also have to be used for purposes of the lifetime credit. Thanks.
Assumptions:
Your employer has included the balance of the assistance as taxable income to you (16,000 - 5,250 = 10,750).
Since you have paid (or will have to pay) taxes on the 10,750 its up to you how you wish to account for it. It doesn't have to be used to offset educational expenses (because you have a tax liability for it). If the employer had not reported the excess on your W-2, then you didn't incur an expense and MUST reduce the educational expense.
Example 1: Your employer paid the 16,000 and DIDN'T include it as taxable income to you. Your income went up 0, and your expense went up 1,000. You can use only the 1,000 for educational credits.
Example 2: Your employer DID include the 16,000 as income to you. Your income went up 10,750 (16K less the 5250) and your expenses went up 11,750 (17K less the 5250). You can use the educational credit for the 11,750.
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