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
• Qualified Student Loans
• The 1098-T Statement

---

The American Opportunity Tax Credit

Under the American Recovery and Reinvestment Act (ARRA), more parents and students qualify for a tax credit, the American opportunity credit, to pay for college expenses.

The American opportunity credit originally modified the existing Hope credit for tax years 2009 and 2010, and was later extended for an additional two years - 2011 and 2012, making the benefit 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

The lifetime learning credit helps parents and students pay for post-secondary education.

For the tax year, you may be able to claim a lifetime learning credit of up to $2,000 for qualified education expenses paid for all students enrolled in eligible 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 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

You may be able to deduct qualified education expenses paid during the year for yourself, your spouse or dependent. You cannot claim this deduction if your filing status is married filing separately or if another person can claim an exemption for you as a dependent on his or her tax return. The qualified expenses must be for higher education.

The tuition and fees deduction can reduce your taxable income by as much as $4,000. This deduction, reported on Form 8917, Tuition and Fees Deduction, is taken as an adjustment to income. This means you can claim this deduction even if you do not itemize deductions on Schedule A of Form 1040. This deduction may be beneficial to you if, for example, you cannot take the lifetime learning credit because your income is too high.

You may be able to take one of the education credits for your education expenses instead of a tuition and fees deduction. You can choose the one that will give you the lower tax.

Generally, you can claim the tuition and fees deduction if all three of the following requirements are met:

• You pay qualified education expenses of higher education.
• You pay the education expenses for an eligible student.
• The eligible student is yourself, your spouse, or your dependent for whom you claim an exemption on your tax return.

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.

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

Student Loan Interest Deduction

Generally, personal interest you pay, other than certain mortgage interest, is not deductible on your tax return. However, if your modified adjusted gross income (MAGI) is less than $75,000 ($150,000 if filing a joint return), there is a special deduction allowed for paying interest on a student loan (also known as an education loan) used for higher education. Student loan interest is interest you paid during the year on a qualified student loan. It includes both required and voluntary interest payments. Read More »

The student loan interest deduction 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.

Qualified Student Loans

This is a loan you took out solely to pay qualified education expenses that were:

• For you, your spouse, or a person who was your dependent when you took out the loan.
• Paid or incurred within a reasonable period of time before or after you took out the loan.
• For education provided during an academic period for an eligible student.

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 31st 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 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.

Click here to sign up for electronic delivery of your 2012 1098-T form.

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