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Is College Tuition Tax Deductible?

It's truly an understatement to say that college tuition has risen a lot in recent decades. If you wanted to attend a public 4-year institution in 2020, it would have cost you 31.4% more than it would have in 2010. And these numbers are only getting higher in 2023. If adjusted for inflation, college tuition in the United States has gone up 747.8% since 1963, according to EducationData.org. Whatever the reasons for the increase, one of the results has been the astronomical increase in student debt. As tuition costs increased, students and their families took out more debt, and today 45 million Americans owe more than $1.76 trillion in federal student loans. There are even 2.4 million retirees who still have student debt.

Table of contents

Key takeaways...Read more

College tuition tax deduction...Read more

What is a college tuition tax credit?...Read more

What college tuition credit is available to students?...Read more

Other ways to take deductions...Read more

Key takeaways

College tuition is not tax-deductible
Education tax credits can help with education costs
Interest on college loans is tax-deductible

Little action has been taken to make things easier for students until quite recently. President Biden's new plan to help working and middle-class federal student loan borrowers will offer ways to make payments a little easier. But there are already a few things students can do to make the cost of higher education easier to bear. If you're self-employed and going to school part-time, like so many other Americans, you'll want to know these tax tips.

College tuition tax deduction

"Is tuition tax deductible" is usually one of the first questions both students and parents of students ask. Unfortunately, the IRS does not allow anyone to take the cost of college tuition as a deduction from their taxable income. But, for those whose income falls below a certain threshold, the federal government does offer something called tax credits to help ease the burden of paying for an education in the US. Rather than a deduction, they are called a higher education tax credit or a college student tax credit. So, is college tuition tax deductible? Unfortunately no, but tax credits are.

What is a college tuition tax credit?

A college tuition credit is fundamentally different from a college tuition tax deduction in that it essentially reduces the amount of income tax you have to pay. It's like a discount on your tax bill after you've figured out all the tax you have to pay for the year. This is different from tax deductions, which are a sort of discount, too. But they reduce the amount of income you have that can be taxed, which is good if you're paying estimated taxes.

Image explaining the difference between tax deduction and tax credit. Deduction reduces taxable income, while credit reduces overall tax bill for certain income brackets. Relevant for taxes.

If you make $65,000 in in 2023, and your income tax rate is 22%, you'll owe $14,300 in taxes. The $2,000 laptop you bought for your online selling business can be a tax write-off if you're self-employed. That would lower your taxable income to $63,000, and you would owe $13,860 in 1099 tax. That's a $440 discount on your taxes. But if you claim that laptop as an educational expense and receive a $2,000 college student tax credit, for example, that would reduce your tax bill from $14,300 to 12,300. You would save $2,000 instead of $440.

What college tuition credit is available to students?

There a couple of tax credits the IRS makes available to students and their parents to help offset the cost of higher education.

American opportunity credit

This tax credit allows students to wipe $2,500 off their tax bill each year to pay for education expenses. The first $2,000 can be taken automatically as a tax credit, while the last $500 depends on how much over $2,000 the student spends on education expenses. If they spend more than $2,000 on education expenses, they can get an additional 25% in tax credit up to $500 on the amount over $2,000. If they spend $2,000 and get the $2,000 tax credit, then spend an additional $2,000, they can get an additional $500 tax credit, for a total of $2,500 in tax credits.

Image promoting tax credit for American taxpayers with the FLYFIN program. Offers up to $2,500 in savings depending on spending. Relevant for self-employed, 1099, and freelancers.

The credit can be used for:

Tuition expenses
School fees
Books
Supplies for fieldwork or work in the campus laboratory or art studio

What it can't be used for is the expenses of normal daily life, like groceries, rent or bus fare. And the American opportunity credit is only for people with an adjusted gross income of $80,000 or less.

Lifetime learning credit

The other college tuition credit available is similar to the American opportunity credit in that it allows taxpayers to take the cost of education expenses off their tax bill. If they have spent $10,000 or more on education expenses in a tax year, the credit lets them take 20% of it off their tax burden. It's effectively a $2,000 tax credit allowed for all of the same education expenses as the American opportunity credit. One major difference is that, to fully claim the credit for the 2022 tax year, a taxpayer must have a modified adjusted gross income (MAGI) of $80,000 ($160,000 if they are married and filing jointly) or less. Recipients of this credit can be college or vocational students of any sort, whereas, with the American opportunity credit, recipients must be undergraduate students.

Other ways to take deductions

A.I.-based tax service FlyFin makes finding every possible tax deduction easier than it has ever been for self-employed people and freelancers working their way through college. Expert CPAs are available 24/7 to guide you through filing 1099 taxes and can even help by preparing and filing your returns for you. FlyFin also offers a self-employment tax calculator and a library of information about all the deductions and tax credits available to self-employed individuals.

Adjust For Inflations

The IRS has released its yearly inflation adjustment for the 2023 tax year, aimed to give US taxpayers relief from rising inflation.