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Is College Tuition Tax Deductible?

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results found for 1.5 million freelancers in the US

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. 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 43 million Americans owe more than $1.6 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

The tuition and fees deduction...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 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. The best part about a college tuition credit (for taxes, not for completing a class) is that it usually ends up saving you more on taxes than deductions do.

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If you make $65,000 in a year, and your income tax rate is 25%, you'll owe $16,250 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 $15,750. That's a $500 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 $16,250 to 14,250. You would save $2,000 instead of $500.

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.

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 benefit from the credit, a taxpayer must have an adjusted gross income of $59,000 ($118,000 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.

The tuition and fees deduction

After all that talk about how tuition is not deductible, it's worth mentioning that for several years leading up to 2020, people paying tuition were able to deduct tuition costs from their taxable income – $4,000 in the 2020 tax year. If, for whatever reason, you have not yet filed your taxes for 2020, it may still be an option for you to take advantage of the deduction. Like the education tax credits available, this deduction has an income limit. Your adjusted gross income cannot exceed $80,000. To deduct tuition and fees for higher education, taxpayers need to report them on IRS Form 8917. The student's school will send a Form 1098-T to report the student's annual tuition and fee payments. These are the only amounts the IRS allows to be included on Form 8917.

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. FlyFin offers self-employment tax calculators and a library of information about all the deductions and tax credits available to self-employed individuals.

Flyfin Vs Turbo Tax And HR Block

Many options are available to get help with tax filing, and knowing which one is best for you can be difficult. There are a few things about FlyFin's tax service that save taxpayers more than any other service is able to.

Is College Tuition Tax Deductible?

Key takeaways

College tuition tax deduction

What is a college tuition tax credit?

What college tuition credit is available to students?

American opportunity credit

Lifetime learning credit

The tuition and fees deduction

Other ways to take deductions

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