TAX BENEFITS FOR EDUCATION

Several tax benefits are available to help families meet the cost of postsecondary education.  Two of those benefits are tax credits known as the Lifetime Learning Credit or the American Opportunity Credit. These tax credits directly reduce the amount of federal income tax owed.  In addition, an “above the line” deduction provides some relief for families whose income is too high to qualify for the tax credits.  Education expense paid for with tax-free grants and scholarships are not eligible for the credits or deduction, however education expenses paid with loans are eligible. 

LIFETIME LEARNING CREDIT (See IRS Form 8863)

This credit applies to tuition and fees for undergraduate, graduate, and continuing education course work.  In 2011, a family can claim on its tax return a credit equal to 20% of $10,000 of educational expenses; so the maximum benefit is $2,000. 

AMERICAN OPPORTUNITY CREDIT (See IRS Form 8863)

You may be able to claim an American Opportunity Credit of up to $2,500 for qualified tuition and other educational expenses. The credit is available for the first 4 years of postsecondary education and 40% of the credit (up to $1,000) is refundable for many taxpayers. Students must be enrolled at least half-time during at least one academic period that begins during a tax year.

TUITION AND FEES DEDUCTION (See IRS Form 8917)

You may be able to deduct qualified education expenses paid during the year for yourself, your spouse or your 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 tuition and fees deduction can reduce the amount of your income subject to tax by up to $4,000.

This 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 (Form 1040). This deduction may be beneficial to you if you cannot take either the Hope or lifetime learning credit because your income is too high.

WHO IS ELIGIBLE FOR THE EDUCATION BENEFITS?

The American Opportunity Credit is available to married taxpayers filing jointly with a modified adjusted gross income (MAGI) of less than $180,000 or $90,000 if filing as single, head of household, or qualifying widow(er). The Lifetime Learning Credits are available to married taxpayers filing jointly with a modified adjusted gross income (MAGI) of less than $120,000 or $60,000 filing as single, head of household, or qualifying widow(er).  Taxpayers cannot use more than one credit for the same student in a single year.  You are not eligible for the credit or deduction if you (or your spouse) were nonresident aliens for any part of 2011 and the nonresident alien did not elect to be treated as a resident alien for tax purposes.

REQUIRED REPORTING

After the end of each tax year, the University is required to file Form 1098-T (Tuition Statement) with the IRS and each student.  Form 1098-T will indicate whether the student was enrolled at least half time for at least one academic term during the tax year, and whether the student was enrolled exclusively in graduate level courses.  Also included on Form 1098-T, are the amounts billed for qualified tuition and related expenses during the calendar year. 

This information is not intended as legal or tax advice and is not an exhaustive listing of all available tax benefits for education or the criteria for those credits.  Individuals should consult the forms and publications found on the IRS website, or contact a tax practitioner about personal income tax situations.