Tax Considerations for Higher Education
These tax breaks may help offset the costs of college, although many
of them are subject to income limitations or phase out as income rises.*
For the most current and detailed information, visit irs.gov
and read Publication 970, Tax Benefits for Education.
Tax-Free Benefits provide tax-free help with education expenses
for qualified students, although they may be subject to income limitations.
- Scholarships, fellowships, etc. are usually not taxed.
- Coverdell Education Savings Account (ESA) can be set up for
beneficiaries under the age of 18.
- Qualified Tuition Programs are sponsored by states or educational
institutions.
- Education Savings Bond interest may be tax-free.
- Employer-provided educational assistance up to $5,250 per
year may be tax-free.
Tax Credits directly reduce tax liability, but phase out as income
rises.
- Hope Scholarship Credit - May be claimed for students in their
first two years of post-secondary education who are enrolled at least
half time. The maximum benefit per student per tax year is $1,500.
- Lifetime Learning Credit - Each taxpayer may claim an annual
credit of up to 20% of the first $10,000 (maximum of $2,000 annually)
for out-of-pocket education expenses at eligible educational institutions.
Tax Deductions lower your taxable income, but may be subject to
income limits.
- Student Loan Interest Deduction - Interest paid on qualified
educational loans may be deductible, up to $2,500.
- Tuition and Fees Deduction - Up to $4,000 may be taken for
a student for whom no other education tax benefits are claimed, when
other income and usage requirements are met.
*Consult a tax advisor for details.
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