The cost of getting through college can be overwhelming. Fortunately, there are some tax breaks to help offset those climbing expenses. Here’s an overview of the education-related tax credits and deductions you should be aware of as you head down the path to higher education.
What is the American Opportunity Tax Credit (AOTC)?
The AOTC is a tax credit worth up to $2,500 per year for an eligible college student. It is refundable up to $1,000, which means you can get money back even if you do not owe any taxes. You may claim this credit a maximum of four times per eligible college student.
What is the Lifetime Learning Credit?
The Lifetime Learning Credit is worth up to $2,000 per year for each eligible student. If no one is claiming you as a dependent, you can take the credit yourself. The number of years you can claim the credit is unlimited, and there is no minimum enrollment requirement to qualify for the Lifetime Learning Credit.
Which education credit should I take?
Some students will qualify for the AOTC and the Lifetime Learning Credit, but the IRS won’t let you take both. Typically, undergraduate students who qualify for both credits will take the AOTC because it is worth more and it is refundable. The Lifetime Learning Credit is best suited for graduate students because there is no limit to the number of years you can claim it. Undergraduate students taking only a few courses are also more likely to take the Lifetime Learning Credit because there is no minimum enrollment requirement.
Can I claim the AOTC?
To qualify for the AOTC, a college student must:
- Be pursuing a degree or other recognized education credential
- Be enrolled at least half time for an academic period during the tax year
- Not have finished the first four years of college at the beginning of the tax year
- Not have already claimed the AOTC on four prior tax returns
- Not have a felony drug conviction at the end of the tax year
There is an income threshold for the AOTC. To get the full credit amount, your modified adjusted gross income (MAGI) must be less than $80,000 (or $160,000 if you are married filing jointly). If your MAGI is above $80,000, you will receive a reduced amount, and if it’s over $90,000, you won’t be able to claim the credit at all.
What education expenses qualify for a tax credit?
Qualified education expenses include tuition and fees that are required for enrollment. If you are claiming the American Opportunity Credit, you can also count the cost of books, supplies, and other equipment necessary for your course of study.
Costs that do not qualify for a tax credit include room and board, insurance, health fees, transportation, and living expenses.
How much can I deduct for student loan interest?
The student loan interest deduction is another tax advantage offered to college students or parents paying for college. It can be taken in addition to an education tax credit. The new tax plan did not change the amount you can deduct for your student loan interest. If you meet all the requirements for the deduction, you will still be able to claim up to $2,500 for interest paid on your student loans.
Parents or students: Who can claim an education credit?
If your child is enrolled in college and you claim them as a dependent on your return, you may receive the credit. If you are a college student and no one claims you as a dependent, you can claim the credit. Whoever is claiming the credit will need a Form 1098-T from the school that shows how much was paid for tuition and qualified expenses. If you don’t have a 1098-T, you can always request one, but not all schools are required to provide them. If your institution doesn’t send you a 1098-T, you will still need a record of enrollment and what was paid for tuition and expenses.
Do I have to claim the same credit for two different dependents?
No. Even though you cannot get both credits for the same dependent, you can claim the AOC for Child 1, and the Lifetime Learning Credit for Child 2 during the same tax year.
Is there a tax deduction for tuition and fees?
Yes, for tax years 2020 and prior the tuition and fees deduction is an above-the-line deduction worth up to $4,000. “Above-the-line” means you don’t have to itemize to take this deduction; it’s available even if you choose to take the standard deduction.
To claim the tuition and fees deduction, you must have paid qualified education expenses for a student who is enrolled in one or more courses at an eligible educational institution. That student could be yourself, your spouse, or your dependent.
Note: if someone else – like your parent – can claim you as a dependent on their tax return, then you can’t take the deduction. This is true, even if they don’t actually claim you.
How do I claim an education credit?
When you file your taxes with TaxSlayer, our software will guide you through the steps for claiming your education tax credit.
College students filing a simple tax return may qualify for free online tax filing. With TaxSlayer Simply Free, your education credits and the student loan interest deduction are included. Learn more
How does the GI Bill affect what I can deduct?
If you paid for qualified education expenses with a GI bill or other payments you received from the Department of Veterans Affairs (VA), those amounts are not taxable. This means that you can’t claim any deductions for those amounts. You are only allowed to claim expenses that are not covered by whatever tax-free assistance you may receive.
The information in this article is current through tax year 2021.