 Tax-free educational assistance includes the tax-free part of scholarship and fellowship grants, see tax-free scholarship and fellowship grants in chapter one, the tax-free part of Pell grants, see Pell grants and other Title IV need-based education grants in chapter one, employer-provided educational assistance, see chapter 10, veterans educational assistance, see veterans benefits in chapter one and any other non-taxable tax-free payments other than gifts or inheritance received as educational assistance. Generally, any scholarship or fellowship grant is treated as tax-free. However, a scholarship or fellowship grant isn't treated as tax-free to the extent the student includes it in gross income. So now you've got this situation, this funny situation. You were going to get free money, you got this free money, and usually they're going to say you don't have to include it in income, which is usually good because we have an income tax system. But if you don't include it in income, then you can't take a credit for it because you've already got a tax benefit because you didn't include it in income. But then you might say, but hey, wait a second, I'd rather include it in income possibly in some situations because then it would allow me to take the credit and the credit might be worth more than the fact that I got a basically a deduction by not having to include it in income. You see where this messiness comes up when they do all this weird stuff? So the student may or may not require to file a tax return for the year the scholarship or fellowship grant is received and either of the following is true. So the scholarship or fellowship grant or any part of it must be applied by its terms to expenses such as room and board other than qualified education expenses as defined in qualified education expenses in chapter one. Similar situation we saw with the American Opportunity Credit here. This is a lot of similar stuff now that we've gone past the qualifications for the expenses. So the scholarship for fellowship grant or any part of it may be applied by its terms to expenses such as room and board other than qualified education expenses as defined in qualified education expenses in chapter one refunds. All right, here we go with the refunds again. You took a course, you dropped out before the date to get your refund and you got your refund but now what do you do about the expenses that you're going to be calculating on your lifetime learning credit? A refund of qualified education expenses may be may reduce adjusted qualified education expenses for the tax year or required repayment recapture of a credit claimed in earlier year. Some tax free educational assistance received after 2022 may be treated as a refund see tax free educational assistance earlier refunds received in 2022. So for each student figure the adjusted qualified education expenses for 2022 by adding all the qualified education expenses for 2022 and subtracting any refunds of those expenses received from the eligible educational institution during 2022. So if you got educational expenses and then you dropped out or whatever and you got a refund off part of it in the same year pretty straightforward you've got to take that refund because you didn't really pay it and reduce the educational expenses that you paid by the amount that got refunded to you. Refunds received after 2022 but before your income tax return is filed. So you got the refund in 2023 but you hadn't yet filed the 2022 tax return in 2023 because you haven't till April or so to do so so you could still take that refund and net it out against the money that you paid in 2022 you would think. So if anyone receives a refund after 2022 of qualified education expenses paid on behalf of a student in 2022 and the refund is paid before you file an income tax return for 2022 the amount of qualified education expenses for 2022 is reduced by the amount of the refund and here's where the messiness comes in though refund received after 2022 and after your income tax return is filed. So now you paid for it in 2022 you dropped out or did something they're going to give you a refund but then you got the refund in 2023 after you filed the tax return. So what are you going to do or you could you have to amend do you have to amend the 2022 tax return to reduce the amount of expenses to reduce the credit and whatnot. So if anyone receives a refund after 2022 of qualified education expenses paid on behalf of a student in 2022 and the refund is paid after you file an income tax return for 2022 you may need to repay some or all of the credit. No!