It’s that time of year again when everyone is scrambling to get their taxes done. You may be able to claim a few things on your tax return for college students. A few deductions and credits can help reduce the amount of taxes you owe or result in a refund. College students can claim a number of items on their taxes, including tuition and fees, textbooks, and supplies.
The American Opportunity Tax Credit is available to students enrolled in at least one course for credit at an eligible educational institution. In addition, the Lifetime Learning Credit is available to students who are not pursuing a degree or certificate and are taking courses to improve job skills. So, what can you claim on your taxes?
What Can College Students Claim On Taxes
Tax credits, deductions and savings plans can help taxpayers with their expenses for higher education. A tax credit reduces the amount of income tax you may have to pay. A deduction reduces the amount of your income subject to tax, thus generally reducing the amount of tax you may have to pay.
In addition, certain savings plans allow the accumulated earnings to grow tax-free until money is taken out (known as a distribution) or let the distribution be tax-free, or both.
Tuition and Fees deduction
Students paying for college tuition and fees can deduct up to $4,000 from their taxes. This is a valuable deduction that can help reduce the amount of students’ taxes. However, there are a few things that students need to know to take advantage of this deduction. First, the deduction is available for both undergraduate and graduate students. Second, the deduction can be taken for either tuition expenses or fees, but not both.
Student Loan Interest Deduction
One of the many benefits of being a college student is receiving tax breaks and deductions. There are many things that college students can claim on their taxes, including tuition and fees, interest paid on student loans, and job-related expenses. Therefore, it is important to understand what is available and claim it to take advantage of these tax breaks.
Qualified student loan
This is a loan you took out solely to pay qualified education expenses (defined below ) that were:
- For you, your spouse, or a person who was your dependent when you took out the loan—paid or incurred within a reasonable period before or after you took out the loan.
- For education provided during an academic period for an eligible student. Loans from the following sources are not qualified student loans: a related person, a qualified employer plan.
Qualified education expenses
In the United States, qualified education expenses are expenses incurred in connection with the enrollment or attendance at an educational institution. Qualified education expenses can include tuition, fees, room and board, books, supplies, and equipment, Other necessary expenses (such as transportation). Students can claim a tax deduction for qualified education expenses in most cases. However, there are a few exceptions, such as when the student claims a tax credit instead of a deduction.
Business deduction for work-related education
In the United States, taxpayers can often deduct certain expenses incurred while working from their taxable income. This includes business-related education expenses. College students working full- or part-time can claim a deduction for work-related education expenses as long as they meet certain requirements.
To claim a business deduction for work-related education, you must:
- Be working.
- Itemize your deductions on Schedule A (Form 1040 or 1040NR) if you are an employee.
- File Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040) if you
- are self-employed.
- Have expenses for education that meet the requirements discussed under Qualifying Work-
- Related Education, below.
Qualifying work-related education
If you are a college student, you may deduct certain expenses from your taxes. For example, qualifying work-related education expenses may be deducted as a job expense. This includes tuition, textbooks, supplies, and transportation. You may also be able to deduct room and board if you live away from home while attending school. However, there are some limitations on what can be deducted. For example, you cannot deduct the cost of travel to and from school.
Education required by the employer or by law
It can be confusing to determine whether or not you need to have a college degree to qualify for a certain job. In some cases, the employer may require a degree, while the law may require it in others. Here are four things college students need to know about education requirements for jobs:
- If an employer requires you to have a college degree, you can usually claim that cost as a deduction on your taxes.
- The requirement serves the business purpose of your employer.
- The education is not part of a program that will qualify you for a new trade or business.
When you get more education than your employer or the law requires, the additional education can be qualifying work-related education only if it maintains or improves skills needed in your present work.
Education to maintain or improve skills.
If your employer or the law does not require your education, it can be qualified work-related education only if it maintains or improves skills needed in your present work. This could include refresher courses, current developments and academic or vocational courses.
The Tax Cuts and Jobs Act (TCJA) made significant changes to qualified tuition programs (529 plans), including the ability of account owners to claim tax-free distributions for qualified higher education expenses. 529 plan distributions used to pay for tuition, fees, room and board, books, supplies, and equipment are now tax-free, regardless of the amount of the distribution. This change applies to distributions made after December 31, 2017.
Qualified tuition programs (529 plans)
529 plans are a great way to save money for college. The plans allow account holders to invest money that can be used to pay for tuition, room and board, and other related expenses. Contributions to 529 plans are not tax-deductible, but the distributions are tax-free as long as they are used for qualified education expenses. 529 plan account holders can also claim a tax credit for their contributions.
Coverdell Education Savings Account (ESA)
A Coverdell ESA can be used to pay qualified higher-education expenses or qualified elementary and secondary education expenses. A beneficiary is under age 18 or is a special needs beneficiary. Income limits apply to contributors, and total contributions for a beneficiary can’t be more than $2,000 in any year.
- Distributions are tax-free as long as they are used for qualified education expenses, such as tuition and fees.
- There is no tax on distributions for enrollment or attendance at an eligible educational institution. This includes any public, private or religious school that provides elementary or secondary education. Virtually all accredited public, nonprofit and proprietary (privately owned profit-making) postsecondary institutions are eligible.
- Education tax credits can be claimed in the same year a beneficiary takes a tax-free distribution from a Coverdell ESA, as long as the same expenses are not used for both benefits.
- Distributions to a child’s educational expenses will be subject to a 10% tax, with an additional 10% if the distribution exceeds qualified education expenses. Exceptions include the death or disability of the beneficiary or if the beneficiary receives a qualified scholarship.
Scholarships and Fellowships
A scholarship is an amount paid or allowed to, or for the benefit of, a student at an educational institution. The student may be either an undergraduate or a graduate. Whether the amount is tax-free or taxable depends on the expense paid with the amount and whether you are a degree candidate.
A scholarship or fellowship is tax-free only if you meet the following conditions:
- First, you are a candidate for a degree at an eligible educational institution.
- You use the scholarship or fellowship to pay qualified education expenses.
Qualified education expenses
For purposes of tax-free scholarships and fellowships, these are expenses for:
- Tuition and fees are required to enroll at or attend an eligible educational institution.
- Students at an eligible educational institution are required to pay for course-related expenses, such as fees, books, supplies, and equipment that are required for the courses they are taking. These items must be required of all students in your course of instruction.
However, it can’t be used for tuition or course-related expenses if the terms of the fellowship or scholarship don’t specify that it must be so.
Expenses that don’t qualify
The Internal Revenue Service (IRS) allows students to claim various expenses on their tax returns. However, some expenses don’t qualify. This article will discuss some of the common expenses that students can claim on their taxes and those that they cannot.
- Room and board
- Clerical help
- Equipment and other expenses that are not required for enrollment in or attendance at an eligible educational institution.
This is true even if the fee must be paid to the institution as a condition of enrollment or attendance. Scholarship or fellowship amounts used to pay these costs are taxable.
Exclusions from Income
You may exclude certain educational assistance benefits from your income. That means that you won’t have to pay any tax on them. However, it also means that you can’t use any of the tax-free education expenses as the basis for any other deduction or credit, including the lifetime learning credit.
Employer-provided educational assistance
If you receive educational assistance benefits from an employer, you can exclude up to $5,250 of those benefits each year. This means your employer should not include the benefits with your wages, tips, and other compensation shown in box 1 of your Form W-2.
Educational assistance program
There may be a qualified educational assistance program where you work. To qualify, the plan must be written and must meet certain other requirements. Your employer can tell you whether there is such a program or if there is an existing one in your field of work.
Educational assistance benefits
Tax-free educational assistance benefits include payments for tuition, fees and other expenses, books, supplies, and equipment. The payments may be for either undergraduate- or graduate-level courses, and do not have to be work-related.
- Meals, lodging, or transportation.
- Tools or supplies (other than textbooks) that you can keep after completing the course of
- Courses involving sports, games, or hobbies unless they:
- Have a reasonable relationship to the business of your employer, or
- Are required as part of a degree program.
Benefits over $5,250
If your employer pays you more than $5,250 for educational benefits for you during the year, you must generally pay tax on the amount. Your employer should include in your wages (Form W-2, box 1) the amount that you must include in income.
Working condition fringe benefit
Benefits over $5,250 do not have to be included in your wages. However, if they also qualify as a working condition fringe benefit, you don’t have to pay for them. Working condition fringe benefits are defined in Publication 15-B, Employer’s Employers’ Tax Guide to Fringe Benefits.
Educator expense deduction
Teachers can deduct up to $250 of unreimbursed business expenses. Taxpayer must be a kindergarten through grade 12 teacher, instructor, counselor, principal or aide for at least 900 hours a year. The deduction is available even if an educator doesn’t itemize their deductions.
Those who qualify can deduct costs like books, supplies, computer equipment and software, classroom equipment and supplementary materials.
For additional IRS resources see our tax topic on Educator Expense Deduction.
- IR-2021-70, Emergency aid granted to students due to COVID is not taxable
- IR-2018-156, IRS offers guidance on recent 529 education savings plan changes
- Tax Tip 2021-106, Here’s what taxpayers need to know about higher education tax credits
- Tax Tip 2020-103, Tax credits can help offset the cost of higher education
- Tax Tip 2019-125, Two education credits help taxpayers with college costs
- Tax Tip 2019-145, Taxpayers can compare eligibility and benefits of two education credits
- 529 Plans: Questions and Answers
- Tax Benefit for Disability: Section 529A ABLE Accounts
- Education Credits
- IRS Benefits Information Centre