Federal Income Tax Benefits for College Students

The IRS offers several tax credits and deductions to college students to offset the expense of post-secondary education. Generally, a student enrolled at least half-time in an accredited college can receive a tax break for qualified college expenses. Each benefit has different eligibility requirements and you can only claim one type of credit per student, per year. Generally, you cannot claim an educational deduction if you are married filing separately.

  1. Tuition and Fees Deduction

    • The tuition and fees deduction is an “above-the-line” deduction. This type of deduction reduces your adjusted gross income by up to $4,000. You can take the deduction if you, your spouse or your dependent child is enrolled in an eligible post-secondary institution. The deduction can be up to 100 percent of the expense you paid for tuition and fees required by the college for attendance. You can’t deduct the cost of books or living expenses. The deduction is phased out depending on your income and filing status, and you can’t claim the deduction if your filing status is married filing separately or you claim other educational credits.

    Student Loan Interest Deduction

    • The student loan interest deduction is another above-the-line deduction that you can claim on page one of your 1040 or 1040A tax return. You can deduct up to 100 percent of $2,500 of student loan interest paid during the year. Similar to the tuition and fees deduction, the amount you can deduct is subject to phaseout limitations determined by your income and filing status. You can deduct the interest for the life of repayment if the funds were used solely for educational expenses for you, your spouse or dependent. Each year you pay back your student loans, your lending institution will provide a 1098-E form that details the interest you paid.

    Lifetime Learning and Hope Credits

    • The Lifetime Learning and Hope Credits are both non-refundable credits that can be used to reduce your tax. The Hope Credit is available only for the first two years of your post secondary education and the maximum credit is $1,800 each year; however, students in a Midwestern Disaster area may qualify for a $3,600 Hope Credit. Students may not have a felony drug conviction and expenses for tuition and fees may be used in calculating the credit. The Lifetime Learning Credit is available to offset qualified tuition and fee expenses for any student. The maximum Lifetime Learning Credit is $2,000 ($4,000 for students in a Midwestern Disaster area), but students can take the credit for an unlimited number of years and do not have to be in pursuit of a degree.

    American Opportunity Credit

    • The American Opportunity is a unique education credit. You can claim the credit as a non-refundable or refundable credit. Non-refundable credits reduce the tax you owe (but not below zero) and a refundable credit allows you to receive the credit amount even if your tax is already zero. The credit is available for the same student for up to four years and unlike the other education credits you can include the cost of books and supplies in your expense calculations. The maximum American Opportunity Credit you can receive is $2,500, of which 40 percent can be refundable. Expenses paid for students in pursuit of an undergraduate degree at least half-time are eligible.

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