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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 are eligible if you paid tuition or fees during the tax year, and the course(s) either started that year or by the end of March the following year
  • You cannot claim credits or deductions for expenses paid with tax-free funds, such as a tax-free scholarship, employee benefit, or portions of distributions from certain educational savings accounts or tuition plans

You may not claim any of the tax credits or deductions if:

  • You are married, but you filed separately from your spouse
  • You are listed as a dependent on someone else’s tax return, such as on your parent’s return
  • You (or your spouse) were a nonresident alien for any part of the year
American
Opportunity
Tax Credit
(AOTC)
  • You are pursuing an undergraduate degree or other recognized post-secondary educational credential
  • You are enrolled at least half-time for at least one academic period that begins during the tax year
  • You are within the first four years of education past high school or GED
  • You paid qualified education expenses, including tuition, fees, and course-related books, supplies, and equipment not necessarily paid to the educational institution (room and board, transportation, insurance, and medical expenses do not count)
  • You earned $80,000 or less in income if you are a single head of household
  • You earned $160,000 or less if you are married and filing jointly
  • You do not have any felony drug convictions
  • For more information, visit the IRS website
Lifetime
Learning Credit
  • You are pursuing education and training related to improving your job skills; the course does not have to count toward a degree
  • You paid qualified education expenses, including tuition, fees, and course-related books, supplies, and equipment (room and board, transportation, insurance, and medical expenses do not count)
  • You purchased the above expenses through the institution you are attending and were required to purchase materials to enroll
  • You earned less than $64,000 if you are a single head of household or a qualifying widow(er)
  • You earned less than $128,000 if you are married and filing jointly
  • You can get this credit every year you are eligible; there is no limit on the number of years it is available
  • Felony drug convictions do not make students ineligible
  • For more information, visit the IRS website
Tuition and
Fees Deduction
  • You were enrolled in a course at an eligible institution; this includes most accredited colleges, universities, vocational schools, or other postsecondary educational institution (your institution will be able to tell you if it is eligible)
  • Your course was at the undergraduate or graduate level
  • You earned less than $80,000 if you are a single head of household
  • You earned less than $160,000 if you are married and filing jointly
  • You paid tuition or fees required for enrollment (tuition or fees do not include room and board, transportation, insurance, or medical expenses)
  • You paid the institution directly, and those expenses were required for you to enroll
  • Felony drug convictions do not make students ineligible
  • For more information, visit the IRS website.

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.

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