The federal government provides a number of tax incentives that can help defray the cost of higher education. These incentives come in a couple of forms:

• Tax credits, which directly reduce the amount of tax you are liable for; and
• Tax deductions, which reduce the amount of income that you pay taxes on.

You may qualify to use more than one of the benefits, but there are some restrictions against this as well. All of the tax credits and deductions are means tested and phased out at high income levels. It's a good idea to consult with a tax expert and figure your taxes multiple ways so you can get the maximum benefit available to you.

Tax Credits

• The American Opportunity Tax Credit
• The Hope Tax Credit
• The Lifetime Learning Tax Credit
• How to Claim Tax Credits

Tax Deductions

• Tuition and Fees Deduction
• Student Loan Interest Deduction
• The 1098-T Statement

---

The American Opportunity Tax Credit

The new credit modifies the existing Hope credit for tax years 2009 and 2010, making it available to a broader range of taxpayers, including many with higher incomes and those who owe no tax. It also adds required course materials to the list of qualifying expenses and allows the credit to be claimed for four post-secondary education years instead of two. Many of those eligible will qualify for the maximum annual credit of $2,500 per student. Read More »

The Hope Tax Credit

The Hope credit generally applies to 2008 and earlier tax years. It helps parents and students pay for post-secondary education. The Hope credit is a nonrefundable credit. This means that it can reduce your tax to zero, but if the credit is more than your tax the excess will not be refunded to you. The Hope credit you are allowed may be limited by the amount of your income and the amount of your tax.

The Hope credit is for the payment of the first two years of tuition and related expenses for an eligible student for whom the taxpayer claims an exemption on the tax return. Normally, you can claim tuition and required enrollment fees paid for your own, as well as your dependents' college education. The Hope credit targets the first two years of post-secondary education, and an eligible student must be enrolled at least half time.

You cannot take both an education credit and a deduction for tuition and fees for the same student in the same year. In some cases, you may do better by claiming the tuition and fees deduction instead of the Hope credit. Read More »

The Lifetime Learning Tax Credit

You may be able to claim a lifetime learning credit of up to $2,000 ($4,000 for students in Midwestern disaster areas) for qualified education expenses paid for all students enrolled in eligible post secondary educational institutions. There is no limit on the number of years the lifetime learning credit can be claimed for each student. However, a taxpayer cannot claim both the Hope or American Opportunity credit and Lifetime Learning credits for the same student in one year. Thus, the lifetime learning credit may be particularly helpful to graduate students, students who are only taking one course and those who are not pursuing a degree.

If you're eligible to claim the lifetime learning credit and are also eligible to claim the Hope or American opportunity credit for the same student in the same year, you can choose to claim either credit, but not both.

If you pay qualified education expenses for more than one student in the same year, you can choose to take credits on a per-student, per-year basis. This means that, for example, you can claim the Hope or American opportunity credit for one student and the lifetime learning credit for another student in the same year. Read More »

How to Claim Tax Credits

Education credits are claimed on IRS Form 8863. For details on these and other education-related tax breaks, see IRS Publication 970, Tax Benefits of Education. Read More »

Tuition and Fees Tax Deduction

The Tuition and Fees tax deduction can reduce your taxable income by as much as $4,000. This deduction may be helpful to you if you are not eligible to take one of the tax credits. It is taken as an adjustment to income, which means you can claim this deduction even if you do not itemize deductions on Schedule A of Form 1040. The amount of the Tuition and Fees deduction you are eligible for depends on the amount of qualified tuition and related expenses paid for eligible students.

Expenses that you can deduct are tuition, fees, and amounts required to be paid to the institution for books, supplies and equipment (less the amount of certain scholarships and grants received) during the tax year for yourself, your spouse, or someone whom you claim as a dependent on your tax return. The expenses must have been for a student enrolled in one or more courses at an eligible educational institution.

You can't claim both an education credit and the tuition and fees deduction for the same student for the same year, but you can take the deduction for one student and a credit for another.

You can't claim this deduction if your filing status is married filing separately or if another person can claim you as a dependent on his or her tax return.

Calculate and claim your Tuition and Fees deduction on IRS Form 8917 - Tuition and Fees Deduction. Read More »

Student Loan Interest Deduction

The Student Loan Interest tax deduction can reduce your taxable income by as much as $2500. It is taken as an adjustment to income, which means you can claim this deduction even if you do not itemize deductions on Schedule A of Form 1040.

You can deduct interest paid on a student loan for yourself, your spouse, or your dependents. The amount of the Student Loan Interest deduction you are eligible for depends on the amount of interest paid and your income.

Qualified student loans must have been used to fund educational expenses such as tuition, room and board, fees, and books for a student enrolled at least half-time and pursuing a degree, certificate, or similar program at an eligible institution.

You cannot claim this deduction if your filing status is married filing separately or if another person can claim you as a dependent on his or her tax return. Read More »

The 1098-T Statement

You will receive information about your annual educational expenses in a 1098-T statement. Schools are required to send this information to each student and to the IRS by January 31 each year. Iona College students can sign up to receive this form electronically or by mail to the home address of record. The student will be emailed in November of each calendar year with the link to sign up for electronic delivery of the 1098-T, if desired. Iona College, like most schools, reports charges and awards posted to the student account for the tax (calendar) year. We do not report on the basis of payments made. Read More »

Remember it is wise to consult with a tax professional when calculating and claiming tax credits or deductions to ensure eligibility and to maximize whatever benefits may be available to you.

Back to Top