Education Tax Credits
Education Credits can help at tax time
College can be very expensive. To help students and their parents, the IRS offers the following five ways to offset education costs.
American Opportunity Credit
Under the American Recovery and Reinvestment Act (ARRA), more parents and students will qualify over the next two years for a tax credit, the American Opportunity Credit, to pay for college expenses. Many of those eligible will qualify for the maximum annual credit of $2,500 per student.
The Hope Credit
The credit can help students and parents pay part of the cost of the first two years of college. This credit generally applies to 2008 and earlier tax years. However, for tax year 2009 a special expanded Hope Credit of up to $3,600 may be claimed for a student attending college in a Midwestern disaster area as long as you do not claim an American Opportunity Tax Credit for any other student in 2009.
The Lifetime Learning Credit
This credit can help pay for undergraduate, graduate and professional degree courses—including courses to improve job skills—regardless of the number of years in the program. Eligible taxpayers may qualify for up to $2,000 per tax return.
Enhanced Benefits for 529 College Savings Plans
Certain computer technology purchases are now added to the list of college expenses that can be paid for by a qualified tuition program, commonly referred to as a 529 plan. For 2009 and 2010, the law expands the definition of qualified higher education expenses to include expenses for computer technology and equipment or Internet access and related services.
Tuition and Fees Deduction
Students and their parents may be able to deduct qualified college tuition and related expenses of up to $4,000. This deduction is an adjustment to income, which means the deduction will reduce the amount of your income subject to tax. The Tuition and Fees Deduction may be beneficial to you if you do not qualify for the American Opportunity, Hope, or Lifetime Learning credits.
Education tax credits can help offset the costs of education. The American Opportunity (Hope Credit extended) and the Lifetime Learning Credit are education credits you can subtract in full from the federal income tax, not just deduct from taxable income. To qualify for an education credit, you must pay post-secondary tuition and certain related expenses for yourself, your spouse or your dependent. The credit may be claimed by the parent or the student, but not by both. Students who are claimed as a dependent cannot claim the credit.
- Amounts spent for tuition, books, supplies, laboratory fees and similar items.
- Transportation and travel expenses to attend qualified educational activities may also be deductible.
- For more information, refer to Publication 970, Tax Benefits for Education; Chapter 12.
- For work-related education expenses, refer to Tax Topic 513, Educational Expenses.
Information provided by IRS.gov. For the most up-to-date information, visit the IRS.gov website.