tax benefits for tuition costs: frequently asked questions
- How does the deduction work?
- What tax benefits are available for tuition costs?
- Who is eligible for an education tax benefit?
- What do we need to know about the American Opportunity credit?
- What do we need to know about 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 or the tuition and fees deduction?
- Where can I get more information about the education tax benefits?
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You may be able to claim an education loan interest deduction if you meet income and other eligibility guidelines. This deduction is an adjustment to income, so, if you qualify, you can claim it even if you do not itemize your deductions on Schedule A (Form 1040).
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The American Opportunity credit (for tax years 2009 and 2010) and the lifetime learning credit are federal tax credits available to eligible individuals who pay higher education costs. The tax credits reduce 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 2009. 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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A taxpayer may be eligible for one of the education tax benefits if qualified education expenses were paid in 2009 for an eligible student for an academic period beginning in 2009 or in the first three months of 2010.
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What do we need to know about the American Opportunity credit?
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- This is a tax credit of up to $2,500* for qualified education expenses per year for each eligible student. The first $2,000 paid qualifies for a 100 percent tax credit; the next $2,000 paid qualifies for a 25 percent tax credit.
- Forty percent (40%) of the American Opportunity Credit is refundable. Tax filers who owe no tax can get an annual payment of up to $1,000 for each eligible student.
- Students must be enrolled at least half time in their first four years of undergraduate education pursuing a degree or other recognized education credential.
- Students must have no record of felony drug convictions.
- Parents qualify by paying tuition and fees for a dependent child or children listed as dependents on the parent’s tax form. Students qualify by paying tuition and fees for themselves, if independent, or for a spouse at an eligible institution.
- Student activity fees, athletic fees, and other expenses are not considered qualified expenses.
- Grants and scholarships reduce the qualified expenses used to determine the credit.
- Eligibility decreases for modified adjusted gross income starting at $80,000 (filing single) and $160,000 (married, filing jointly). Families cannot claim an American Opportunity credit if their modified adjusted gross income is above $90,000 (filing single) or $180,000 (married, filing jointly).
*Special rules apply to students attending college in a Midwestern disaster area.
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Consult a tax advisor or IRS Publication 970, Tax Benefits for Education, which you can download from www.irs.gov. -
- This is a credit of up to $2,000 per tax return (covering all students in the household) per year for qualified higher education expenses.
- Available for all years of postsecondary education and for courses either to acquire or improve job skills. There is no limit on the number of tax years the lifetime learning credit can be claimed.
- This credit can be claimed for 20% of the first $10,000 of qualified education expenses paid, up to $2,000.
- 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.
- Students qualify by paying tuition and fees for themselves, if independent, or for a spouse. Parents qualify by paying tuition and fees for a dependent child or children.
- Student activity fees, athletic fees, and other expenses are not considered qualified expenses.
- Grants and scholarships reduce the tuition and fees used to determine the credit.
- Eligibility decreases for modified adjusted gross income above $50,000 (filing single) and $100,000 (married, filing jointly). Families cannot claim a lifetime learning credit if their modified adjusted gross income is above $60,000 (filing single) or $120,000 (married, filing jointly).
- Students or parents benefit from tax credits up to the amount of their federal income taxes. If no taxes are paid, no tax credit is received.
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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 the Lifetime Learning credit because your income is too high.
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Generally, qualified expenses are amounts paid in 2009 for tuition, fees, and course materials required for the student’s enrollment at an eligible educational institution. Qualified expenses do not include amounts paid for room and board, 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.
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In order to be eligible for the American Opportunity credit, a taxpayer’s modified adjusted gross income cannot be more than $90,000 for single filers or $180,000 for joint filers.
In order to be eligible for the lifetime learning credit, a taxpayer’s modified adjusted gross income cannot be more than $60,000 for single filers or $100,000 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.)
You are not eligible for any of these tax benefits if you are married and filing a separate return.
You can claim only one of the tax credits or the tuition and fees deduction; no double benefits are allowed. See IRS Publication 970 for more information.
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How do I claim an education tax credit or the tuition and fees deduction?
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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; or
- IRS Form 8917 to claim the tuition and fees deduction
Both forms are filed with your federal income tax Form 1040 or Form 1040A.
If you had qualified tuition and related expenses in 2009, you should receive an IRS Form 1098-T from your school by January 31, 2010. 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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- Consult a tax advisor or IRS Publication 970, Tax Benefits for Education, which you can download from www.irs.gov.
- Talk with an IRS staff person by telephone at 800-TAX-1040 (800-829-1040).
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