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Education Tax Credit

Currently in :

Education Tax Credit

Education Benefits You Might Not Know About

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 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.

Table of contents

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

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?

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 tax credit actually provides a bigger benefit than a tuition and fees deduction. The American opportunity credit is not a tuition tax credit 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.

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?

Who is eligible?

Is it refundable?

Food and Entertainment Deduction

How to know what counts as food and drink tax write-offs for self-employed people and freelancers.

Charitable Contribution

How to save on taxes when donating to a charity or non-profit.

Education Tax Credit

All about the tax benefits available to college students and their parents.

Home Office Deduction

How the home office deduction saves self-employed people and freelancers on their taxes.

Home Improvement Deduction

What qualifies as a home improvement tax deduction and how self-employed or freelance homeowners can benefit most.

Health Insurance Deduction

How to itemize health insurance as a tax deductible for freelancers and self-employed people.

Child Tax Credit

The benefits of the Child Tax Credit, who qualifies for it and how it works to help offset the costs of raising a child.

Travel Expense Deduction

How to take business trip tax deductions for freelancers and self-employed people.

Food and Entertainment Deduction

How to know what counts as food and drink tax write-offs for self-employed people and freelancers.

Charitable Contribution

How to save on taxes when donating to a charity or non-profit.

Education Tax Credit

All about the tax benefits available to college students and their parents.

Home Office Deduction

How the home office deduction saves self-employed people and freelancers on their taxes.

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 it 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.

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.

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