According to Section 2503 of the Internal Revenue Code of 1986, a payment made directly to an educational institution to pay for the tuition of a student does not count as a gift to the student for gift tax purposes. But when I make a payment for a student, how can I show the payment is for the tuition, not for any other fees like dorm room and dining plan? The school will just apply the payment to the entire bill, which includes tuition and all the other fees. Thanks.
You don't have to show anything. Just make sure the amount you give doesn't exceed the amount of the tuition portion plus the max you can gift per year. For example, suppose the student's yearly breakdown is as follows:
- Tuition: $30,000
- Room, Board, & Books: $20,000
You can pay for $44,000 without having to file any paperwork. If you are married you can pay the full $50,000 without filing any paperwork since the combination of you and your spouse can gift $28,000 beyond the tuition.
Just make sure to keep all of your receipts in case you are ever audited.
Tuition means exactly what it says. From a Wall Street Journal article on the subject:
Two important things to keep in mind: First, tuition is the operative word in the reader's question, experts say. The grandparent's payment must be for tuition at a qualified institution–not room, not board, not books.