It’s that time of year again. That is to say, it’s time to gather all your paperwork, W-2’s, receipts, statements, and related documents and work on your tax forms. Consequently, here are a few key education tax benefits to help you get the most possible deductions. You can find more information in IRS Publication 970 Tax Benefits for Education. This includes all the information you need, including sample forms and worksheets.
Education Tax Benefits
Certain tax benefits are available if you are saving for or have paid for educations costs. In general, most benefits apply to higher education. They may be allowed for you as a student, or a member of your immediate family who was a student. Usually, you can’t use the same qualifying education expense for more than one tax benefit. Certain benefits may be ruled out based on your income. Here are the education-related items from Publication 970:
- Scholarships, Fellowship Grants, Grants, and Tuition Reductions
- American Opportunity Credit
- Lifetime Learning Credit
- Student Loan Interest Deduction
- Student Loan Cancellations and Repayment Assistance
- Tuition and Fees Deduction
- Coverdell Education Savings Account (ESA)
- Qualified Tuition Program
- Education Exceptions to Additional Tax on Early IRA Distributions
- Education Savings Bond Program
- Employer-Provided Educational Assistance
Below are three general education tax benefits. Be sure to review IRS Publication 970 for all possible benefits. Seek help from a licensed tax professional to take full advantage of education tax benefits.
Student Loan Interest Deduction
Is your modified adjusted gross income less than $80,000 (or $160,000 if filing a joint return)? Did you also pay interest on a qualified student loan for higher education expenses? If so, you may be able to reduce the amount of your income subject to tax by up to $2,500. If the amount of interest you paid on your student loans in 2018 was $600 or more, you should receive a Form 1098-E (Student Loan Interest Statement) from your lender or loan servicer. Form 1098-E will provide you with the amount of interest you paid. The Student Loan Interest Deduction Worksheet in the Form 1040 or Form 1040A instructions can assist in calculating your deductions.
Student Loan Cancellations and Repayment Assistance
Loan Cancellation
If a loan you must repay is forgiven or cancelled, you may need to include the amount forgiven in your gross income for tax purposes – although Section 9675 of the American Rescue Plan Act made most types of student loan forgiveness tax-free from 2021 through 2025. Loans included in this legislation include:
- Federal student loans.
- Private loans made to students or parents.
- State-sponsored education loans.
- Institutional loans made by colleges and universities.
Repayment Assistance
If you receive student loan payments from any of these sources, the payments are not considered taxable:
- Scholarships, Fellowship Grants, Grants, and Tuition Reductions
- The National Health Service Corps (NHSC) Loan Repayment Program
- A state education loan repayment program eligible for funds under the Public Health Service Act
- Any other state loan repayment or loan forgiveness program intended to provide for the increased availability of health services in underserved or health professional shortage areas (as determined by such state).
You may not deduct interest paid on student loans if those payments came through these programs.
Tuition and Fees Deduction
Did you pay qualified education expenses during the year for yourself, your spouse, or your dependents? If so, you may be able to reduce the amount of your income subject to tax by up to $4,000. As with as the student loan interest deduction, you claim the tuition and fees deduction as an adjustment to your income. Therefore, you are not required to itemize in order to claim this benefit. In order to claim the deduction, your modified adjusted gross income can’t be greater than $80,000 (or $160,000 for joint returns). Subsequently, the educational institution may provide you with Form 1098-T. This form provides payments received or billed for qualified education expenses. To claim the tuition and fees deduction, complete Form 8917 and submit it with your Form 1040 or Form 1040A.
We hope you found the above information helpful. We encourage you to be aware of all the possible deductions related to education tax benefits. There are a number of education related tax benefits available. If you think you might qualify, consult the IRS website or Publication 970 for more detailed information and guidance.
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