Now that school is back in session, it’s time to take a look at the various tax benefits you may qualify for to help offset the cost of higher education. Below are the various benefits that you may qualify for. If you are “phased out” don’t be discouraged; there is still the possibility that these credits may be claimed on your child’s return.
Tax credits directly reduce the amount of federal income tax due on your tax return. There are currently two education credits available:
The American Opportunity Tax Credit
- Maximum annual credit = $2,500 per eligible student
- Available for the first four years of higher education
- The student must be enrolled at least half time for at least one academic period at an eligible educational institution and pursing a degree or other recognized educational credential
- The credit is completely phased out if Modified Adjusted Gross Income is over $90,000 (Single filers) or $180,000 (Joint filers)
- Up to $1,000 of this credit can still be taken if you do not have any tax liability for the yea
The Lifetime Learning Credit
- Maximum annual credit = $2,000 per tax return
- No limit on the number of years the credit can be claimed
- The student must be enrolled for at least one academic period at an eligible educational institution and taking courses to get a degree or to improve job skills
- The credit is completely phased out if Modified Adjusted Gross Income is over $62,000 (Single filers) or $124,000 (Joint filers)
- None of this credit is available if you do not have any tax liability for the year
Student Loan Interest Deduction
The student loan interest deduction can be taken as an adjustment to income, which means even if you don’t normally itemize your deduction it may be taken. The maximum deduction is $2,500 and must be for interest paid during the tax year on a qualified student loan. Modified Adjusted Gross Income must be less than $75,000 (Single filers) or $150,000 (Joint filers) to qualify for the deduction.
Business Deduction for Work-Related Education
A taxpayer must itemize on Schedule A or file a Schedule C in order to take this deduction. The education expenses are combined with other miscellaneous expenses and the portion of that total that exceeds 2% of Adjusted Gross Income will reduce the amount of income that is subject to tax. Schedule C filers can directly reduce self-employment income by the education expense.
Tuition and Fees Deduction
This deduction expired December 31, 2013. It may or may not be reinstated after the elections in November.
If you would like assistance in understanding whether or not you qualify for an education credit or deduction, please reach out to your tax consultant at MKS&H.
Article contributed by Heather Hagelin, CPA, MKS&H In-Charge Accountant
About MKS&H: McLean, Koehler, Sparks & Hammond (MKS&H) is a professional service firm with offices in Hunt Valley and Frederick. MKS&H helps owners and organizational leaders become more successful by advising them regarding their financial, technology and human capital management needs.
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