America Opportunity Credit
- Maximum Credit: Up to $2,500 per eligible student annually
- Limit on modified adjusted gross income: $180,000 if married filing jointly; $90,000 if single, head of household, or qualifying widow(er)
- Refundable or nonrefundable: 40 percent of credit may be refundable; the rest is nonrefundable
- Number of years of postsecondary education: Available only for the first four years of postsecondary education
- Number of tax years credit available: Available only for four tax years per eligible student, including any year(s) Hope credit was claimed
- Type of degree required: Undergraduate or graduate degree
- Number of courses: Student must be enrolled at least half time for at least one academic period that begins during the year
- Felony drug conviction: No felony drug convictions on student’s records
- Qualified expenses: Tuition and fees required for enrollment; course-related books, supplies, and equipment do not need to be purchased from the institution in order to qualify
Lifetime Learning Credit
- Maximum Credit: Up to $2,000 credit per return
- Limit on modified adjusted gross income: $132,000 if married jointly; $66,000 if single, head of household, or qualifying widow(er)
- Refundable or nonrefundable: Nonrefundable—credit limited to the amount of tax you must pay on your taxable income
- Number of years of post-secondary education: Available for all years of post-secondary education and for courses to acquire or improve job skills
- Number of tax years credit available: Available for an unlimited number of years
- Type of degree required: Undergraduate or graduate degree or non-degree courses to acquire or improve job skills
- Felony drug conviction: Felony drug convictions are permitted
- Qualified expenses: Tuition and fees required for enrollment, including amounts required to be paid to the institution for course-related books, supplies, and equipment
Student Loan Interest Deduction
- Maximum benefit: You can reduce your income subject to tax by up to $2,500
- Loan qualifications: Your student loan must have been taken out solely to pay qualified education expenses and cannot be from a related person or made under a qualified employer plan.
- Student Qualifications: The student must be a taxpayer, taxpayer’s spouse, or taxpayer’s dependent and enrolled at least half-time in a degree program.
- Time limit on deduction: You can deduct interest paid during the remaining period of your student loan.
- Limit on modified adjusted gross income: $160,000 if married filing a joint return; $80,000 if single, head of household, or qualifying widow(er)
Coverdell Education Savings Account
A Coverdell ESA is set up to pay the qualified education expenses of a designated beneficiary.
Where can it be established?
It can be opened in the United States at any bank or other IRS-approved entity that covers Coverdell ESAs.
Who can have a Coverdell ESA?
Any beneficiary who is under the age 18 or is a special needs beneficiary.
Who can contribute to this ESA?
Generally, any individual (including a beneficiary) whose modified adjusted gross income for the year is less than the IRS limits.
Are distributions tax free?
Yes, if the distributions are not more than the beneficiary’s adjusted qualified education expenses for the year.
Education Savings Bonds
You may be able to cash in qualified US savings bonds without having to include in your income some or all of the interest earned on the bonds, if you meet the following conditions:
- you pay qualified education expenses for yourself, your spouse, or a dependent for whom you claim an exemption on your return;
- your modified adjusted gross income is less than the IRS limits; and
- your filing status is not married filing separately.
Tuition and Fees Deduction
What is the maximum benefit?
You can reduce your income subject to tax up to $4,000.
Where is the deduction taken?
As an adjustment to income on Form 1040 or Form 1040A.
For whom must the expense be paid?
A student enrolled in an eligible educational institution who is either:
- a taxpayer,
- a taxpayer's spouse, or
- a dependent for whom you claim an exemption.
What tuition and fees are deductible?
Tuition and fees required for enrollment or attendance at an eligible post-secondary educational institution but not including personal, living, or family expenses such as room and board.
Note—you cannot claim this deduction if any of the following apply:
- your filing status is married filing separately;
- another person can claim an exemption for the student as a dependent on his/her tax return;
- the modified adjusted gross income is more than $80,000 ($160,000 joint);
- the individual or student claiming the deduction is a nonresident alien, including a spouse; or
- you claimed the American Opportunity Credit or Lifetime Learning Credit.
Scholarships and Fellowships
A scholarship is generally an amount paid or allowed to, or for the benefit of, a student at an educational institution to aid in the pursuit of studies. The student may be either an undergraduate or a graduate.
A fellowship is generally an amount paid for the benefit of an individual to aid in the pursuit of study or research.
Scholarships and Fellowships are tax free only if
- the student is a candidate for a degree at an eligible educational institution; and
- the aid is used to pay for qualified education expenses:
- tuition and fees required to enroll or attend an eligible educational institution, or
- course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. Expenses don’t include room and board, travel, research, clerical help, or equipment and other expenses that are not required for enrollment or attendance.
Qualified Tuition Program (QTP)
- Qualified tuition programs are also called “529 plans.”
- States may establish and maintain programs that allow you to either prepay or contribute to an account for paying a student’s qualified education expenses at a postsecondary institution. Eligible educational institutions may establish and maintain programs that allow you to prepay a student’s qualified education expenses. If you prepay tuition, the student will be entitled to a waiver or a payment of qualified education expenses. You cannot deduct either payments or contributions to a QTP. For information on a specific QTP, you will need to contact the state agency or eligible educational institution that established and maintains it.
- The tax benefit of a QTP is that no tax is due on a distribution for a QTP unless the amount distributed is greater than qualified educational expenses.
Business Deduction for Work-Related Education
- If you are an employee and can itemize deductions, you may be able to claim a deduction for the expenses you pay for your work-related education. Your deduction will be the amount by which your qualifying work-related education expenses plus other job and certain miscellaneous expenses is greater than 2 percent of your adjusted gross income.
- If you are self-employed, you deduct your expenses for qualifying work-related education directly from your self-employment income. This reduces the amount of your income subject to both tax and self-employment tax.
- Your work-related education expenses may also qualify you for other tax benefits, such as the tuition and fees deduction and the American Opportunity and Lifetime Learning credits. You may qualify for these benefits even if you do not meet the requirements listed above.
Qualifying Work-Related Education
You can deduct the costs of qualifying work-related education as business expenses. This is education that meets at least one of the following two tests:
- The education is required by your employer or the law to keep your present salary, status, or job. The required education must serve a bona fide business purpose of your employer.
- The education maintains or improves skills needed in your present work.
However, even if the education meets one or both of the above tests, it is not qualifying work-related education if it is
- needed to meet the minimum educational requirements of your present trade or business, or
- part of a program or study that will qualify you for a new trade or business.