Several tax benefits are available to help families meet the cost of postsecondary education. Two of those benefits are tax credits known as the Hope Credit and the Lifetime Learning 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 expenses paid for with tax-free grants and scholarships are not eligible for the credits or deduction; education expenses paid with loans, however, are eligible.
Hope Scholarship Credit
You may be able to claim a Hope credit for qualified tuition and related expenses paid for each eligible student. The credit you are allowed is limited by the amount of your income and the amount of your tax. The Hope credit can be claimed only for two tax years and applies only to the first two years of postsecondary education. Students must be enrolled at least half-time during at least one academic period that begins during a tax year.
Lifetime Learning Credit
This credit applies to tuition and fees for undergraduate, graduate, and continuing education course work.
Comparison of Education Credits
Lifetime Learning Credit
Tuition and Fees Deduction
You may be able to deduct qualified tuition and related expenses paid during the year for yourself, your spouse or a dependent. The tuition and fees deduction can reduce the amount of your income subject to tax and can be taken even if you do not itemize your deductions.
Who is eligible for the education benefits?
The Hope and Lifetime Learning Credits and the tuition deduction are available to taxpayers whose modified adjusted gross income (MAGI) is less than the thresholds published by the IRS. Taxpayers cannot use both credits 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 the calendar year and the nonresident alien did not elect to be treated as a resident alien for tax purposes.
After the end of each tax year, the college or 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 obtain IRS Publication 970, Tax Benefits for Higher Education, or contact a tax practitioner about personal income tax situations.