tax benefits for tuition costs: frequently asked questions
- What tax benefits are available for education?
- Who is eligible for an education tax benefit?
- What are the benefits of the Hope credit?
- What are the benefits of the lifetime learning credit?
- What is the tuition and fees deduction?
- What are the benefits of a tuition and fees deduction?
- What are qualified expenses?
- Are there restrictions?
- How do I claim an education tax credit?
- Where can I get more information about the education tax benefits?
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The IRS offers two tax credits to help offset the costs of higher education. They are the Hope credit and the lifetime learning credit, also referred to as education credits. The credits work by reducing the amount of your federal income tax liability.
Families who are not eligible for tax credits may qualify for a tuition and fees deduction for qualified higher education expenses paid in 2007. A deduction reduces the amount of your income that is subject to taxation. You do not need to itemize deductions to claim this benefit.
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You may be eligible for one of the education tax benefits if you paid qualified expenses in 2007 for an eligible student for an academic period that began in 2007 or in the first three months of 2008. Income restrictions apply.
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The Hope credit provides a tax credit of up to $1,650 for qualified education expenses per each eligible student per year for the first two years of postsecondary education.
- Students must be pursuing an undergraduate degree or other recognized education credential.
- Students must be enrolled at least half time for at least one academic period beginning during the year.
- Students must have no record of felony drug convictions.
- The Hope credit cannot be claimed in 2007 for a student for whom a Hope credit was claimed in more than one prior tax year. However, it is possible that a lifetime learning credit or a tuition and fees deduction may be claimed.
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The lifetime learning credit offers a credit of up to $2,000 per tax return (covering all students in the household) per year for qualified higher education expenses incurred during any year of postsecondary study or for any courses used to acquire or improve job skills.
- Students do not need to be pursuing a degree or other recognized education credential.
- The credit is available for one or more courses.
- The felony drug conviction rule does not apply.
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The tuition and fees deduction allows you to deduct qualified education expenses paid during the year for yourself, your spouse, or your dependent. You cannot claim this deduction if your filing status is married–filing separately or if another person can claim an exemption for you as a dependent on his or her tax return. The qualified expenses must be for higher education. Your modified adjusted gross income must be more than $80,000 ($160,000 if filing a joint return)
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The tuition and fees deduction can reduce the amount of your income subject to tax by up to $4,000, depending on the amount of your modified adjusted gross income. This deduction is taken as adjustment to income. You can claim this deduction even if you do not itemize deductions on Schedule A (Form 1040). This deduction may be beneficial to you if you cannot take either the Hope or lifetime learning credit because your income is too high.
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Generally, qualified expenses are amounts paid in 2007 for tuition and fees required for the student’s enrollment at an eligible educational institution. Qualified expenses do not include amounts paid for room and board, books, equipment, student activities, insurance, athletics (unless the course is part of the student’s degree program), transportation, or other similar personal, living, or family expenses.
You must reduce the total of your qualified expenses by any tax-free education assistance you received and by any refunds of qualified expenses. Tax-free education assistance includes a tax-free scholarship or Pell grant or tax-free employer-provided education assistance. Qualified expenses paid with loans, earnings, gifts, inheritances, and personal savings can be used to calculate the tax credit. Refer to IRS Publication 970 (Tax Benefits for Education) for information regarding qualified expenses and the taxability of grants and scholarships. Return to top
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In order to be eligible for the Hope credit and the lifetime learning credit, a taxpayer’s modified adjusted gross income must be less than $55,000 for single filers or $110,000 for joint filers. (Your modified adjusted gross income is your adjusted gross income as figured on your federal tax return, unless you have income earned abroad or from certain U.S. territories or possessions.) This modified adjusted gross income is used to determine the reduction of Hope Scholarship and lifetime learning credits.
One provision that will extend through 2007 is a tax deduction for qualified higher education expenses, which is available even to taxpayers who do not itemize deductions on their federal returns. The provision, which expired at the end of 2005, applies retroactively to the 2006 calendar year. Under the provision, individuals whose modified adjusted gross income is less than $80,000, and couples who earn less than $160,000 jointly, can deduct up to $4,000 in tuition and some other college costs for themselves or their children. You are not eligible for any of these tax benefits if you are married and filing a separate return. No double benefits are allowed (see IRS Publication 970 for more information). Return to top
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You will need either of the following:
- IRS Form 8863 (Education Credits), which is used to calculate the education tax credit. This form must be filed with your federal income tax Form 1040 or Form 1040A; or
- worksheet in the Form 1040 or 1040A instructions to calculate the tuition and fees deduction
(As of the date of this printing, the IRS had already published IRS Form 1040 without a line for the deduction. The IRS will issue special instructions on ways to report the deduction.)If you had qualified tuition and related expenses in 2007, you should receive an IRS Form 1098-T from your school by January 31, 2008. On the Form 1098-T, the school reports either payments received (box 1) or amounts billed (box 2) for qualified education expenses. The Form 1098-T provides additional information to assist you in calculating your qualified tuition and related expenses. Compare your records to the information on the Form 1098-T, as you may have benefited from tax-free education assistance not reported by the school.
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Where can I get more information about the education tax benefits?
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- IRS Publication 970 (Tax Benefits for Education)
- IRS Web site for online access to Publication 970, Form 8863, and other useful information
- IRS by telephone
- 800-TAX-1040 (800-829-1040) for questions
- 800-TAX-FORM (800-829-3676) for publications and forms
- Tax professionals, such as an accountant, tax preparer, or tax lawyer
