Excluded Amounts

Taxpayers who pay qualified higher education expenses with tax-free funds cannot claim a credit for those amounts. Qualified expenses must be reduced by the amount of any tax-free educational assistance taxpayers receive. Ask the taxpayer if the student received any of these tax-free educational benefits:

• Pell grants.
• Employer-provided educational assistance.
• Veteran's educational assistance.
• Tax-free portions of scholarships and fellowships.
• Any other nontaxable payments received as educational assistance (other than gifts or inheritances). For example, distributions from a 529 plan reported on Form 1099-Q, Payments From Qualified Education Programs (Under Sections 529 and 530).
• Refunds of the year's qualified expenses paid on behalf of a student (e.g., if the student dropped a class and received a refund of tuition).