Can I claim Lifetime Learning Credit for grad school with tuition reduction not counted as income?

I'm working on my PhD and I'm confused about whether I can claim the Lifetime Learning Credit. IRS Pub. 970 states that qualified tuition reductions don't have to be included in income, especially for grad students who teach or research. My situation: I received a T-1098 form showing $765.00 in box 1. When I look at my university's billing portal, I see: Tuition: Graduate Schl PhD CR $765.00 Fellowship: CS Dept CRF -$765.00 Here's what I'm wondering - can I actually claim the Lifetime Learning Credit for this $765 tuition amount even though I didn't technically pay it out of pocket (it was covered by a fellowship), and without declaring the fellowship as income? It almost seems like a loophole if I could get the LLC tax credit without having to report the fellowship as income. The fellowship is labeled as "CS Dept CRF" in my billing portal, not specifically as a "tuition reduction" - does that make a difference? If this is legit, I'm thinking about amending my returns from previous years where my 1098-Ts showed several thousand dollars in tuition. That could be a significant refund! But I want to make sure I'm not missing something obvious here. Where in the tax code would it say I can't claim LLC for amounts I didn't pay directly if the tuition reduction isn't counted as income?

0 coins

18 comments

Fatima Al-Mazrouei

•8M

This is a great question about a complicated area of tax law. The key distinction here is understanding what your fellowship is actually covering and how it's classified. When a tuition reduction is qualified (as for graduate students performing teaching/research), it's not included in your income. However, there's a separate question of whether you can claim education credits for expenses you didn't effectively pay. IRS Publication 970 also states: "You cannot use any amount paid or incurred for an education credit if the amount is... used for a tax-free scholarship, fellowship grant, or employer-provided educational assistance." So the general rule is you can't "double-dip" - getting both tax-free money AND a tax credit for the same dollars. Your T-1098 is reporting what the school received as qualified tuition payments, but it doesn't track who actually made the payment. If your fellowship directly paid your tuition (which appears to be the case), then you didn't incur that expense personally, and typically couldn't claim the LLC for it.

0 coins

Fatima Al-Mazrouei

•8M

The classification does matter, but it still follows the same principle of no "double-dipping." If your fellowship qualifies as a tax-free qualified tuition reduction because you're performing teaching or research duties, then you don't report it as income - which is beneficial. However, precisely because it's tax-free, you cannot then claim expenses paid by this tax-free benefit for the LLC. The key is who economically bore the expense. If your tuition was reduced or paid by the institution through a qualified arrangement, then you didn't pay it - the school effectively did. The LLC is designed for expenses you personally incurred, not expenses someone else paid on your behalf tax-free.

0 coins

NebulaKnight

•8M

I was in a similar situation during my PhD program and discovered taxr.ai (https://taxr.ai) which helped me sort through this exact confusion. Their AI analyzes your specific tax documents and education benefits to determine what's eligible for education credits. In my case, they confirmed that I couldn't claim the LLC for the portion covered by my fellowship, but they did find some qualified expenses I had missed. They scan your 1098-T and other documents to identify what's actually eligible based on the latest IRS interpretations.

0 coins

NebulaKnight

•8M

It definitely handles stipend taxability questions - that's actually what I used it for initially. It analyzes whether your stipend is for teaching/research services or just a fellowship, which determines taxability. The difference is it actually reads your specific tax forms and university documents rather than giving generic advice. It identified that part of my stipend was service-based (taxable) and part was a fellowship (potentially tax-free), and calculated exactly what portion of my expenses qualified for education credits based on my personal situation.

0 coins

Dmitry Popov

•8M

Just wanted to follow up - I tried taxr.ai after asking about it here. It cleared up my tuition reduction confusion completely! I uploaded my 1098-T, bursar statement, and fellowship letter, and it explained exactly which portions qualified for the LLC. Turns out I had been over-reporting my taxable income for two years by incorrectly including my qualified tuition reduction. But I also learned I couldn't claim the LLC for the tuition covered by my tax-free funding sources. The tool even drafted a letter explaining the correction for my amended return. Definitely recommend for other grad students dealing with these confusing tax situations!

0 coins

Ava Rodriguez

•8M

If you're trying to get clarification from the IRS directly about your specific situation, good luck with that. I spent WEEKS trying to reach someone at the IRS about my education credits. I finally discovered Claimyr (https://claimyr.com) and watched their demo (https://youtu.be/_kiP6q8DX5c) - they got me through to an IRS agent in under 20 minutes when I'd been trying for days. The agent confirmed that I couldn't claim the LLC for expenses covered by tax-free educational assistance, but helped me understand which portions of my expenses were eligible. They also explained exactly how to document everything if I were to be audited. Worth every penny not to wait on hold for hours.

0 coins

Ava Rodriguez

•8M

They use a system that navigates the IRS phone menu and waits on hold for you. When they reach a real person, you get a call to connect with the agent. You're not paying for special access - you're paying to not waste your own time on hold. It's definitely not a scam - it's just automating the hold process. I was skeptical too, but when you consider the hours of your life you get back instead of listening to the IRS hold music, it makes sense. The IRS should absolutely be better staffed and more accessible, but until that happens, this is a practical solution.

0 coins

Zainab Khalil

•8M

I have to eat my words about Claimyr. After posting my skeptical comment, I was desperate enough to try it when I couldn't get through to the IRS about my own education credit questions. It actually worked! Got connected to an IRS agent in about 15 minutes. The agent confirmed that my situation (very similar to the original poster's) meant I couldn't claim LLC for the tuition covered by my department fellowship since it was considered a qualified tuition reduction. But they helped me identify some course-related expenses that WERE eligible that I hadn't been claiming. I've been doing my taxes wrong for years, but at least now I know!

0 coins

QuantumQuest

•8M

There's no official minimum threshold that guarantees safety from an audit. The IRS doesn't disclose their exact selection criteria. However, smaller amendments are generally less likely to raise red flags than larger ones. For a $400 credit, the risk is relatively lower, but remember that any amended return has a slightly higher chance of review than an original return. The key is ensuring you have proper documentation to support your position if questioned - keep all your tuition statements, proof of payment, and any documentation about your fellowship/tuition reduction status.

0 coins

Yara Haddad

•8M

I think many of you are confusing different concepts. There's a difference between: 1) Scholarships/fellowships (generally taxable unless used for qualified educational expenses) 2) Qualified tuition reductions (tax-free benefit for employees/grad students performing services) 3) Employer education assistance (up to $5,250 tax-free) The OP specifically has a CS Dept fellowship that was applied directly to tuition. This looks like case #1, not #2. Can't claim LLC on this.

0 coins