Education Tax Benefits and Credits
- Can I deduct my tuition from my federal taxes?
There are a number of ways the tax code helps people afford college. The federal government offers federal tax benefits, tax credits, tax deductions and savings incentives that can offset college costs. According to the IRS, here is how each program works: • A tax credit reduces the amount of income tax you may have to pay. • A deduction reduces the amount of your income that is subject to tax, thus generally reducing the amount of tax you may have to pay. • Certain savings plans allow the accumulated interest to grow tax-free until money is taken out (known as a distribution), or allow the distribution to be tax-free, or both. • An exclusion from income means that you won't have to pay income tax on the benefit you're receiving, but you also won't be able to use that same tax-free benefit for a deduction or credit. For more information, visit the IRS website at www.irs.gov.
- What is the American Opportunity Credit?
Under the American Recovery and Reinvestment Act (ARRA), parents and students may qualify for the American Opportunity Credit to pay for college expenses. The American Opportunity Credit modifies the existing Hope Credit for tax years 2009 and 2010, making it available to a broader range of taxpayers, including many with higher incomes and those who owe no tax. This credit allows for four years of qualified expenses and includes course materials as a qualified expense. The maximum annual credit is $2,500 per student. For more information, visit the IRS website at www.irs.gov.
- What is the Lifetime Learning Credit?
The Lifetime Learning Credit helps parents and students pay for a college education. A credit of up to $2,000 per year ($4,000 for students in Midwestern disaster areas) can be taken for qualified education expenses paid for all students enrolled in eligible educational institutions. According to the IRS, you can generally claim the Lifetime Learning Credit if all three of the following requirements are met: • You pay qualified education expenses of higher education. • You pay the education expenses for an eligible student. • The eligible student is either yourself, your spouse or a dependent for whom you claim an exemption on your tax return. For more information, visit the IRS website at www.irs.gov.
- How many federal tax credits can I take advantage of?
According to the IRS, you can choose to claim either the Lifetime Learning Credit or the American Opportunity Credit . If you pay qualified education expenses for more than one student in the same year, you can choose to take credits on a per-student, per-year basis. This means that, for example, you can claim the American Opportunity Credit for one student and the Lifetime Learning Credit for another student in the same year. Please consult a tax professional or visit the IRS website at www.irs.gov for specific regulations.
- What is the Tuition and Fees Deduction?
Using the Tuition and Fees Deduction, you may be able to deduct higher education expenses for yourself, your spouse or your dependent on your federal income tax return. Depending on your income, the Tuition and Fees Deduction can reduce the amount of your income subject to tax by up to $4,000. According to the IRS, you will not be eligible to take advantage of the Tuition and Fees deduction if any of the following apply: • Your filing status is married filing separately. • Another person can claim an exemption for you as a dependent on his or her tax return. • Your modified adjusted gross income (MAGI) is more than $80,000 ($160,000 if filing a joint return). • You were a nonresident alien for any part of the year and did not elect to be treated as a resident alien for tax purposes. • You or anyone else claims an education credit for expenses of the student for whom the qualified education expenses were paid. For more information, visit the IRS website at www.irs.gov.
- What is the Student Loan Interest Deduction?
What is the Student Loan Interest Deduction? You may qualify for a tax deduction of up to $2,500 just for paying your student loans. The Student Loan Interest Deduction allows you to deduct up to $2,500 of student loan interest paid during the year. Interest paid on loans you received for your spouse’s or child’s education may also be deducted. This deduction is available regardless of whether you itemize deductions on your federal tax return. According to the IRS, to claim the Student Loan Interest Deduction you must meet the following criteria:• You must have been enrolled at least half time in a degree granting program during the time of the loan.• Your modified adjusted gross income (MAGI) is less than $75,000 ($150,000 if filing a joint return)• You are not being claimed as a dependent on your parent’s tax return For more information, visit the IRS website at www.irs.gov. According to the IRS, to claim the Student Loan Interest Deduction you must meet the following criteria: • You must have been enrolled at least half time in a degree granting program during the time of the loan. • Your modified adjusted gross income (MAGI) is less than $70,000 ($145,000 if filing a joint return) • You are not being claimed as a dependent on your parent’s tax return For more information, visit the IRS website at www.irs.gov.
- What is the Coverdell Education Savings Account?
The Coverdell Education Savings Account (ESA) helps parents and students save for education. It can be used to pay for a student’s post-secondary or K-12 education expenses. Contributions to a Coverdell ESA are limited to $2,000 per year for taxpayers with a modified adjusted gross income (MAGI) of less than $110,000 ($220,000 if filing a joint return). Coverdell ESA deposits grow tax free until distributed. However, the beneficiary will not owe tax on the distributions if they are less than a beneficiary’s qualified education expenses at an eligible institution. This benefit applies to qualified higher education expenses as well as to qualified elementary and secondary education expenses. For more information, visit the IRS website at www.irs.gov.
- What is a 529 College Savings Plan?
A 529 College Savings Plan allows parents to save for college costs. Contributions and earnings grow tax-free and distributions are not federally taxed as long as they are used for qualified higher education expenses. Under some plans, earnings may also grow tax free from state income tax. There is no income limit for contributors. For more information about 529 College Savings Plans, please check with your financial planner or tax professional. Or, visit the IRS website at www.irs.gov.