As student loan debt continues to rise, the question "is college tuition tax deductible?" is becoming more common. Though college tuition is not allowed to be directly deducted from income taxes or self-employment taxes, there are some options. For students and their parents who have an income below a certain threshold, the federal government eases, even if only slightly, the tax burdens on them. The idea is to lower the financial barriers to American students getting a college education. To do this, the IRS offers several tax credits for students and their parents who pay their children's tuition. They also allow taxpayers in that income range to take several tax deductions specific to college students.

Image showing tax benefits related to education including American opportunity credit, lifetime learning credit, and student loan interest. No mention of self employed, 1099, freelancer, or taxes.

Table of contents

What is the American opportunity credit?...Read more

What is Lifetime learning credit?...Read more

Student loan interest deductions...Read more

Loan requirements...Read more

Income limit...Read more

Education-related tax forms...Read more

IRS questions and answers...Read more

What is the American opportunity credit?

The American opportunity tax credit (AOTC) is an educational credit to offset qualified education expenses for an eligible student for the first four years of higher education. The maximum annual American opportunity credit is $2,500 for every eligible student. Interestingly, you can also get a 40 percent refund (up to $1,000) if the opportunity credits brings your tax owed to zero. The American opportunity tax credit is 100 percent of the first $2,000 of the qualified education expenses paid by you for each eligible student and 25 percent of the next $2,000 of qualified expenses paid for that student.

How does a tax credit work?

A tax credit is not the same as a tax deduction. Usually, tax credits give you bigger savings because they reduce your tax bill at the end of the year. So, if your tax bill ends up being $4,000, and you receive a tax credit of $2,000, you only have to pay half of your tax bill. But deductions only lower the amount of your income that can be taxed. Usually your deductions, even if all of them are added up, don't have as much impact on what you end up owing. So, a education or tax credit actually provides a bigger benefit than a direct tuition and fees deduction. The American opportunity credit is not a tuition tax deductible but it lets those who qualify for it knock $2,500 off their tax bill in a given year, if they paid $4,000 or more in education expenses. The first $2,000 is an automatic tax credit. Then, if they spend another $2,000 on education expenses, they can also take 25% of that amount, or $500, off their final tax bill. Together, the two credits total $2,500. The American opportunity tax credit is an educational incentive for qualifying students and their qualifying expenses.

Image explaining American Opportunity Credit - a tax credit for education costs up to $2,500. Available for eligible taxpayers, not limited to self-employed or freelancers. No mention of 1099 or taxes.

If a student owes $3,000 in taxes at the end of the year and they spent $2,500 or more in tuition, they would pay only $500 in tax if you take advantage of the American opportunity credit.

What expenses qualify to American opportunity credit?

The AOC functions in a way like a tuition tax credit. It's available to qualified individuals who spend the required amounts on tuition, school fees, books or other supplies required for coursework. That could include laboratory supplies, art supplies or supplies for fieldwork. It can't include expenses you normally have no matter what you're doing in life. Things like groceries, transportation costs and rent are not considered to be qualified education expenses when it comes to this education credit.

Who is eligible for American opportunity credit?

The American opportunity credit was set up to benefit undergraduate students and their parents. Students of any age can claim the tax credit on their own taxes for up to four years, if they are paying their own tuition. If a student's parents are paying, the parents will claim the credit, but only if they claim the student as a dependent when they file their taxes. You can only receive the full credit amount if your adjusted gross income was $80,000 or less during the tax year.

Is American opportunity credit refundable?

What is Lifetime learning credit?

The lifetime learning credit is also not a tuition tax credit, nor is it a tuition and fees deduction that taxpayers can take. Instead, it benefits college students of all kinds by letting them take 20% of their first $10,000 in education expenses off the tax they owe at the end of the year. If they spent $10,000 or more in tuition, student fees or expenses related to coursework, that's a $2,000 tax credit. The same rules about qualified education expenses that apply to the American opportunity tax credit apply to this education credit, too.

Who is eligible?

Is lifetime learning credit refundable?

Student loan interest deductions

You’re surely familiar with student debt if you're an American who is in college or went to college. Around 44 million Americans have student debt. That's one in eight of us owing a combined $1.7 trillion in outstanding student loans. A few decades ago, state and local funding for higher education experienced deep cuts, and more of the costs of college were pushed onto students. Tuition costs have more than doubled, and over the years going into debt was the only option for many people to go to college. Believe it or not, there is one bright side to this, if only a small one. You might not know that the interest that accrues on your student loans can be written off your taxes at the end of the year. It depends on what your income was for the year and of course on how much student loan interest you paid, but you can deduct up to $2,500.

Image explaining qualifications for student loan interest deduction, including payment of interest, legal obligation, income level, marital status, and dependent status. No mention of self-employment, 1099, freelancer, or taxes.

Loan requirements

For a taxpayer to claim this deduction, their loan itself needs to satisfy some requirements. The loan has to have been taken out to pay for higher education expenses, like tuition, school fees, books, etc. Those expenses need to have been incurred by someone who was an eligible student at the time. And, the expenses the loan pays for can't have been incurred before or after you took out the loan.

Income limit

Your adjusted gross income needs to be lower than $85,000 to qualify to write off student loan interest from your taxes. The limit is $170,000 for taxpayers who are married and filing jointly. The closer a person is to that limit, the less they are allowed to deduct for student loan interest.

IRS questions and answers

The IRS isn't exactly known for making taxes easily understandable, but they offer comprehensive information about education tax credits and write-offs at IRS.gov. Use this guide to find information about some of the other important itemized deductions that are available to taxpayers, some specifically for freelancers and self-employed individuals for paying estimated taxes. You can also read about the form 8863 on the link.

Tax Write-Offs

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Standard deduction and business expense

Even if you decide to take the standard deduction, you can still itemize your 1099 business expenses and deduct them from your taxable income.

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Child Tax Credit

Understanding the Child Tax Credit to help offset the costs of raising a child. Parents are eligible to receive a Child Tax Credit for each qualifying child.

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Tax Write-Offs

Understand what makes a business expense tax-deductible, so you can write it off your taxes and lower your tax payment.

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Standard deduction and business expense

Even if you decide to take the standard deduction, you can still itemize your 1099 business expenses and deduct them from your taxable income.

LEARN MORE →

Child Tax Credit

Understanding the Child Tax Credit to help offset the costs of raising a child. Parents are eligible to receive a Child Tax Credit for each qualifying child.

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Tax Write-Offs

Understand what makes a business expense tax-deductible, so you can write it off your taxes and lower your tax payment.

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