Tax Benefits: Federal
What are federal education tax benefits?
There are three different federal education tax benefits that may help you receive a higher refund or owe less money when you file your taxes if you have paid for tuition, books, supplies, or equipment related to college courses or job training. The benefits are available for classes taken by you or your dependents. The Internal Revenue Service (IRS) is the federal government agency responsible for tax collection.
What tax benefits are available to me if I am enrolled in college or training program?
Of the three federal education tax benefits, two are tax credits, and one is a tax deduction.
- A tax credit directly reduces the amount of income tax you have to pay. After you determine your taxable income and subtract your deductions, you figure out your tax due. You can reduce that number through tax credits. If the credit is refundable, it can reduce the amount you owe to below zero, which provides you with a cash refund check.
- The American Opportunity Tax Credit (AOTC) is a partially refundable credit. Individuals enrolled in a program leading to a degree, certificate, or other recognized educational credit are eligible.
- The Lifetime Learning Credit is a nonrefundable credit. This credit is available to anyone enrolled in one or more courses, which can include job training or other courses that do not result in a degree.
- A tax deduction reduces the amount of income counted towards calculating your income tax, which may reduce the amount of tax you owe. This tax benefit is called the Tuition and Fees Deduction. This deduction is available for anyone in enrolled post-secondary courses at an eligible institution.
- You may use only one tax benefit per student per tax year, but you may use different credits for different students within the same tax year. For example, if you have a dependent for which you are claiming credits, you may receive the AOTC for that dependent but you may not then claim the Tuition and Fees Deduction also. For a second dependent, you may claim the Lifetime Learning Credit (but not also the Tuition and Fees Deduction and the AOTC) in that same year.
How much is each federal education tax benefit worth?
- The American Opportunity Tax Credit can help you increase your refund by up to $1,000. If you owe taxes, then you can reduce that amount by up to $2,500 per student.
- The Lifetime Learning Credit may reduce only the amount of tax you owe by up to $2,000 per return depending on your spending, the tax you owe, and your income.
Which federal education tax benefits am I eligible for?
You can use the chart below to determine your eligibility.
|Tax benefit||You are eligible if you meet ALL of the following:|
|For all benefits||
You may not claim any of the tax credits or deductions if:
Am I still eligible if I live with my parents?
If you file your own taxes and take an exemption for yourself, then you are eligible for federal education tax credits on your own. If your parents or someone else claim you as a dependent on their taxes, then they are eligible. Oftentimes the rules for claiming the Tuition and Fees Deduction are more complicated than the credits. If your parents paid for your tuition and supplies but you file your own taxes, you may not claim the deduction. If you file on your own and have paid all of your own expenses, you are eligible for the deduction.
More Information and Resources
For more information, visit the IRS website.