College Education and Tax Deductions

If you, as a student, attend any accredited K-12 school, university, community college, trade or vocational school, or adult/continuing education class, you will generally qualify for one or several education tax credits or tax deductions. The degree you are pursuing may affect whether you qualify or not (e.g. bachelor's degree, a master's degree, a certificate, or even a PhD for your post-secondary educational institution).

Education Tax Credits and Child Tax Credits

If you claim a student as a dependent on your tax return, note that you can claim only one type of education credit per student dependent on your federal tax return each tax year. If more than one student dependent qualifies for a credit in the same year, you can claim a different credit for each student. Utilize our free tools: the DEPENDucator or RELucator will determine who qualifies as a dependent or use the CHILDucator tool for the Child Tax Credit.

KEY TAKEAWAYS

• Students attending accredited K-12, universities, or vocational schools are generally eligible for education tax credits or deductions, depending on their degree level.
• When claiming education credits, there are restrictions on what you can claim each year - the details and restrictions are on the student tax credits page.
• Tax credits and deductions can include expenses such as tuition, fees, books, and supplies but not room and board. The amount you can claim may be limited by your income level.
• There is a reduction of up to $2,500 on taxable income for student loan interest paid, but is subject to income limits. This deduction applies even if the student is still in school.
• The Tuition and Fees Tax Deduction was repealed in 2021. However, past returns for 2018-2020 may still claim this deduction, which had specific income-based limits.

To figure the total tax credit or tax deduction amount for an eligible student, you may be able to include qualified expenses, such as tuition, fees, books, supplies, and other required course materials, but not room and board. These credits are subject to income limitations, so your amount may be reduced or eliminated based on your adjusted gross income, or AGI.

The Student Loan Interest Deduction is still in effect as is the American Opportunity Tax Credit and Lifetime Learning Credit. You can claim both the interest deduction plus a tax credit if you are actively paying off your student loans with interest while in school.

Expenses for Student Tax Deductions, Credits

Since tax reform in 2018, more students qualify for one of two tax credits instead of a tax deduction. Credits are generally more beneficial and easier to claim; you may qualify if you pay for schooling expenses for yourself, your spouse, or dependent(s).

Important note: The Tuition and Fees Tax Deduction is no longer able to be claimed for 2023 year taxes - the linked details provide more information.

There is a deduction you can claim for each year which you pay interest on your student loans.

Student Loan Interest Deduction

If you have started to pay back your student loans, you may be able to reduce your taxable income by up to $2,500 of the student loan interest you have paid for you, your spouse, or your dependent. This also includes the one-time "loan origination fee" charged by your lender. Review the limits below - if you make under the phaseout threshold for your filing status, then you can deduct all your interest paid. You can take a reduced deduction if your income is within the range and if you make more than the range, then you would not be able to take this deduction.

The eFile.com Tax App makes it easy for you to claim education credits and tax deductions. Simply enter your education expenses and you will be shown all the deductions and credits you qualify for.

The Student Loan Interest Deduction is an above-the-line deduction, which means that you do not need to itemize deductions in order to claim it. Above the line deductions reduce your taxable income and ultimately lower your adjusted gross income. To qualify for the deduction, the student loan on which you paid interest must be a commercial loan taken out exclusively for the purposes of paying for education. The loan may only apply to a student who is enrolled at least half-time in a degree program. The student must be you, your spouse, or your dependent.

You can take this deduction if you are single, head of household, or qualifying surviving spouse based on the first range in the table above; the limit in parentheses is for married filing jointly. Married filing separately taxpayers are ineligible for the deduction as well as if you are claimed as a dependent on someone's return.

How to Claim Education Deductions and Credits on eFile.com

During the tax interview and after you have indicated that you have education expenses, on the Education screen, there are a series of questions you will be asked. After you have provided the answers and information, the tax app will highlight for you which education credit you qualify for and is best for you—the American Opportunity Credit or the Lifetime Learning Credit. If you have student loan interest to claim, you can provide that information on the Student Loan Adjustment form.

How Can Students Save Money on Taxes?

Besides claiming tax credits (which reduce the amount of income tax you owe) and tax deductions (which reduce the amount of your income that is taxable), there are two other major ways students can save money on taxes:

• Exclusions: Tax exclusions are parts of your income that do not have to be included in your gross income on your tax return. The most relevant forms of non-taxable income for students are scholarship funds and fellowship grants. Learn more about excluding scholarship and grant income.
• Educational Assistance Programs: If you work for an employer with an education assistance program and they offer to pay for your schooling or your student loans, this income is tax free up to $5,250.
• Savings Plans: There are two special kinds of savings accounts which provide great tax benefits to students: Coverdell Educational Savings Accounts (Coverdell ESA's) and Qualified Tuition Programs, which are also known as 529 College Savings Plans.
• Financial Aid: When applying for financial aid, generally via the FAFSA (Free Application for Federal Student Aid), your college or university may ask you to provide old tax returns—either yours or your parents. If you filed your previous tax returns on eFile.com, the previous 3 years' returns will be in your account. If you need a copy of a return that is prior to the last 3 years, contact us. If you did not file your previous tax return on eFile.com, you might need to obtain a copy or free transcript of a tax return from the IRS. A transcript of your tax return provides W-2 information along with the basic information that was filed with the tax return, including marital status, adjusted gross income, taxable income, and most line items from the tax return. The tax return transcript can be sent directly to the institution asking for it.

See more money saving resources:

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Education Assistance Programs

Employers are allowed to offer educational assistance benefits that employees can exclude from their gross income, providing tax advantages for both parties involved in qualified educational programs.

An educational assistance program under Section 127 must be a written plan exclusively for employees, covering expenses like tuition, fees, books, supplies, and equipment necessary for undergraduate or graduate courses. It can also include payments of principal or interest on qualified education loans incurred by the employee.

Employees can exclude up to $5,250 per calendar year from their gross income for educational assistance benefits received. This exclusion applies to both direct payments for education expenses and contributions towards qualified education loans. Benefits are not subject to income tax withholding and should not be included in the employee's wages reported on Form W-2. However, these tax-free benefits cannot be used to claim other education-related tax deductions or credits, such as the Lifetime Learning Credit.

These benefits cannot extend to spouses, dependents, or owners of the business unless specific conditions are met, such as the non-discrimination rule and the 5% benefit limitation for shareholders or owners.

Amounts paid by employers under a Section 127 educational assistance program are deductible as business expenses under Section 162 of the Internal Revenue Code.

Review other tax savings for all taxpayers, including students.

College Student Tax Credits

• American Opportunity Credit
• Lifetime Learning Credit

Education Savings Plans for College and K-12 Students

• Qualified Tuition Programs (QTPs) (529 Plans): College
• Coverdell Educational Savings Accounts (ESA): K-12.

Related Student Tax Topics

• Review our student tax guide.
• Learn about valuable student tax credits.
• Find out how to save money with tax-free student savings accounts.
• Learn about other tax deductions and tax credits for which you may qualify to claim on your tax return.
• Use our free tax tools and calculators to help calculate taxes or determine eligibility for certain credits.
• Lived abroad for schooling? Learn about tax-related topics for living, working in a foreign country.
• How to save money when living abroad.
• If you have a foster child in school, learn additional ways to save on taxes.
• Review our foreign student and scholar resource guide.

Tuition and Fees Deduction

Important: The Tuition and Fees Tax Deduction was brought back by Congress in late 2019 for Tax Years 2018, 2019, and 2020. It was available for several years due to extensions that Congress had passed. However, since 2021, it has been repealed and thus is no longer available. The Lifetime Learning Credit amounts were increased and you can claim this on your next return. You will need to file a tax amendment and include Form 8917 to claim the Tuition and Fees Tax Deduction on your 2018, 2019, and 2020 Returns. If you still need to file these past returns, see prior year tax forms that you can fill out and mail in your 2018-2020 or any previous return.

The Tuition and Fees section is archived in case this tax deduction is ever brought back.

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For your 2020 and prior years, you can claim a tax deduction of up to $4,000 depending on your modified adjusted gross income or MAGI and filing status for qualifying tuition and fees you paid for you, your spouse, or a dependent. Note that you do not qualify if married filing separate. You can deduct any qualified expenses up to $4,000, even if you paid the tuition and fees with a loan. If you take the Tuition and Fees Deduction and you have also paid interest on student loans, you may be able to take the Student Loan Interest Deduction as well.

If you are filing a tax amendment to claim the Tuition and Fees Deduction on your 2020 or earlier return, here's how much the student tuition deduction might be worth:

• Worth $4,000, if your modified adjusted gross income (MAGI) was under $60,000 with the filing status of single or under $130,000 for married filing jointly couples.
• Worth $2,000 for single filers with a MAGI between $60,000 and $80,000, or the married filing jointly filing status with a MAGI between $130,000 and $160,000.
• Worth $0 tax deduction for single filers with a MAGI over $80,000, or over $160,000 for married filing jointly couples.

To qualify, the student for whom you paid tuition and fees must be you, your spouse, or your dependent. The student need only be enrolled part-time.

Qualified expenses for the Tuition and Fees Tax Deduction are the total costs of attending an eligible educational institution (including graduate school). An eligible educational institution is a school offering higher education beyond high school. It is any college, university, trade school, or other post-secondary educational institution eligible to participate in a student aid program run by the U.S. Department of Education. This includes most accredited public, nonprofit, and privately-owned–for-profit postsecondary institutions. If you are not sure if your school qualifies, you can ask the schooling institution or see if your school is listed here .

These costs include:

• Tuition and fees
• Books, equipment, and supplies
• Room and board
• Other necessary expenses, such as transportation.

Room and board costs only qualify for the deduction if they are not more than the greater of:

• The allowance for room and board (as determined by the eligible educational institution) that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student, OR
• The actual amount charged if the student is residing in housing owned or operated by the educational institution.

You will NOT qualify for the Tuition and Fees Deduction if any of the following are true:

• Your filing status is married filing separately
• You may be claimed as a dependent on another tax return (whether or not you are actually claimed)
• You are claiming either the Lifetime Learning Credit or The American Opportunity Credit
• Your adjusted gross income is higher than $80,000 ($160,000 if married filing jointly)
• You were a nonresident alien for any part of the Tax Year and did not elect to be treated as a resident alien for tax purposes.

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