Financial Aid

Education Tax Credits and Deductible Education Expenses

Find out which student tax deductions are available to you.

Kathryn Knight Randolph

March 13, 2022

Discover which education expenses are tax deductible.
Education Tax Credits and Deductible Education Expenses
Hearing that you must file taxes will likely lead to inward groaning – and maybe even some that is external. However, for students and their families, there are benefits to filing taxes. Though you dread it, you may be eligible for deductions and tax credits just for being enrolled in college. Whether you’re filing taxes as a student for the first time, or it has been a while since you’ve had a student in college, there are some updates to tax deductible education expenses that you should know about.

1098-T Form

Each year that a student is enrolled in college, you will need to complete the 1098-T form. Every student should receive this form by January 30, 2022, and it will be sent to you by your education institution. According to the IRS, the form will detail:
• Amount paid in tuition and fees for the prior year • Scholarships and grant aid • Reimbursements and refunds • Student status (i.e. full-time, part-time, or graduate/professional student) The amount on this form can sometimes be different from what you paid. If there is a discrepancy, report only what you actually paid, and make sure you have the documentation to prove it.

Education Tax Credits

There are two types of education tax credits: the Lifetime Learning Credit and American Opportunity Credit.
The Lifetime Learning Tax Credit is available to students who are pursuing higher education of any kind. For instance, you do not need to be attending college for a Bachelor’s degree. Rather, you can be taking career development courses to qualify. Students can claim up to $2,000 in credit for qualified education expenses. The American Opportunity Tax Credit, formerly known as the Hope Scholarship Credit, is available to students seeking a degree, certification, or other recognized credential. It can be claimed for up to four years. Students will receive up to $2,500 in credit on qualified education expenses. A family cannot claim both education tax credits for one student each year. However, the credits can be stacked for multiple students in a household in college at the same time.
A taxpayer whose modified adjusted gross income is $80,000 or less ($160,000 or less for joint filers) can claim the credits for the qualified expenses of an eligible student. The credit is reduced if a taxpayer’s modified adjusted gross income exceeds those amounts. A taxpayer whose modified adjusted gross income is greater than $90,000 ($180,000 for joint filers) cannot claim any of the credit. A note about deductible education expenses: these are defined as tuition, fees, and required course materials. Room and board, travel, research, clerical help, or equipment and other expenses that are not required for enrollment do not count as qualified education expenses.

Student Loan Deduction

Education tax credits are not limited to those who are currently enrolled in school or a career development program. You are eligible to deduct on the interest you pay for qualifying student loans. Filers can claim up to $2,500 in student loan deductions or up to the amount of interest actually paid. In order to be eligible, your modified adjusted gross income cannot exceed $85,000 ($170,000 if married filing jointly). Also, the deduction is reduced when your modified adjusted income is between $70,000 and $85,000 when filing as single, head of household, or qualifying widower (and between $140,000 and $170,000 for filing married filing jointly).

Emergency Financial Aid Grants and Tuition and Fees Deduction

Over the last year, many students and their families have qualified for emergency financial aid grants under the CARES Act, the Coronavirus Response and Relief Act 2021, and the American Rescue Plan Act of 2021. For tax filing purposes, these emergency grants to not count as income. The IRS also states that “a student does not reduce an amount of qualified tuition and related expenses by the amount of an emergency financial aid grant.”
Finally, for the past few years, students and families have been able to take advantage of the tuition and fees deduction. According to the IRS, this tax benefit was repealed under the Taxpayer Certainty and Disaster Tax Relief Act of 2020. For further information, see the IRS Tax Benefits for Education Publication 970.

Filing Taxes vs. Filing the FAFSA

As parents file their taxes, a question oftentimes comes up: is a dependent on taxes the same as a dependent on the Free Application for Federal Student Aid (FAFSA)? The short answer: no. Claiming a student as a dependent child on taxes, or having them file their own taxes, has no bearing on financial aid eligibility when the time comes to file the FAFSA in October. It is actually extremely difficult to qualify as an independent student on the FAFSA. Learn what makes a student independent on the FAFSA. Parents can claim college-age children as dependents on the FAFSA if they meet the following criteria: • Be younger than the taxpayer and under age 19 or under age 24 and a full-time student for at least five months of the year. • Or the child can be any age if totally and permanently disabled. • Have lived with parents or guardians for more than half the tax year (does not count time spent away at school). • Not provide more than half of their own support for living expenses, like food, clothing, lodging, dental or medical expenses (out-of-pocket), and education. • Be a United States citizen, resident, national, or resident of Canada or Mexico. • Be a qualifying relative, including your child, stepchild, foster child placed by a licensed agency, sibling, step-sibling, or a descendent of any of these, like a niece or nephew. TaxSlayer is a great resource for parents who may have more questions about claiming their college-age children as dependents when filing taxes.

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