5 Commonly Overlooked Education Tax Credits and Deductions

By Kat Tetrina

If you’re living paycheck to paycheck, getting an unexpected windfall can be an opportunity to open a savings account and build a safety net. 

According to the IRS, the average tax refund for the 2018 tax season was $2,869. If you’re one of the millions of people in the U.S. struggling to pay down debt or build an emergency fund, that refund can make a big impact. 

If you’re in school or are a recent college graduate, your education expenses can be a big drain on your expenses. This is why it’s important to take advantage of education-related tax deductions and credits. 

To help you get every dollar you’re entitled to receive in the way of a tax refund, read on to learn more about tax deductions and credits.

Why are tax deductions and credits useful? 

You’ve probably heard people talk about completing their taxes and writing off expenses. But what is a tax write-off? It’s a way to lower your taxable income and boost your tax refund

There are two main terms you should know: 

 

  • Tax credits: By contrast, a tax credit is a dollar-to-dollar reduction of what you owe in income taxes. For instance, if your tax bill is $500 but you have $500 in tax credits, you’d have a tax bill of $0. 

 

By claiming all of the deductions and credits you’re eligible for, you can reduce your tax bill and increase your tax refund. Then, you can deposit that extra cash into a bank account with no monthly fees and start improving your finances. 

5 education-related tax deductions and credits

As a college student or recent college graduate, your education is likely one of your biggest expenses. Naturally, you’re looking for a tuition tax credit. 

While you can’t deduct the full cost of your tuition and expenses, there are five education-related tax deductions and credits you can claim to lower your tax bill. Take a look.

1. American Opportunity Tax Credit

If you’re enrolled at least half-time at a university and are pursuing a degree, you get up to $2,500 as an annual credit through the American Opportunity Tax Credit (AOTC). The tax credit is refundable. If the credit brings your tax bill to $0, you can have 40 percent of the remaining value of the credit refunded to you, up to $1,000. 

For instance, let’s say you qualified for the full $2,500 credit and had a tax bill of $500. Because you’d still have $2,000 of the credit left after satisfying your tax bill, you’d get 40% of that amount — $800 — sent to you as part of your tax refund. 

You can claim the AOTC for the first four years you spend in higher education. To be eligible, you must receive Form 1098-T (Tuition Statement) from a qualifying school. To claim the full credit, your modified adjusted gross income (MAGI) must also be $80,000 or less, or $160,000 or less if you’re married and filing a joint return. 

2. Lifetime Learning Credit

If you’re pursuing a degree or taking a certificate course, you can qualify for up to $2,000 in credits through the Lifetime Learning Credit (LLC)

Unlike the AOTC, there is no limit to how many years you can claim the LLC, so you can claim it throughout your career. 

To qualify, you must be taking courses at an eligible educational institution to get a degree or improve your job skills. To claim the full credit, you must make less than $58,000 per year. You can’t claim the credit at all if your MAGI is $68,000 or more, or $136,000 or more if you’re married and filing jointly. 

Unlike the AOTC, the LLC is not refundable. If the LLC lowers your tax bill to $0, you won’t get any of the remaining credit sent to you. 

3. Student Loan Interest Tax Deduction

Going to school can be prohibitively expensive, so you may be wondering, “is college tuition tax deductible?” 

Unfortunately, your tuition and room and board isn’t deductible on your tax return. However, if you took out federal or private student loans to pay for school, the interest you pay on those loans is deductible. 

With the Student Loan Interest Tax Deduction, you can deduct $2,500 or however much you paid in interest on qualified education loans – whichever is less. You can qualify for this deduction if you paid interest on an eligible loan in the past year, you’re legally obligated to make payments on that loan, and your filing status isn’t married filing separately. 

4. Educator Expense Deduction

If you’re a teacher or educator, you can deduct up to $250 ($500 if married filing jointly, and you and your spouse are educators) that you spent on business expenses like books, supplies, or computer equipment that you use in the classroom. 

5. Earned Income Tax Credit

For working college students and recent graduates, the Earned Income Tax Credit (EITC) is one of the most substantial tax benefits you can claim. If you have no children and are single, you can qualify for the EITC if you had a job during the past tax year and if your earned income is less than $15,570. 

With no children, the maximum credit a single person can receive for the 2019 tax season is $538. The EITC is refundable, so you can get the remaining amount after paying your tax bill refunded to you. For college students and young professionals, claiming the EITC can be a great way to get extra money. 

Maximizing your tax refund

When you’re on a tight budget, your tax refund can be a real blessing. By claiming all of the tax deductions and credits you’re eligible for, you can lower your tax bill and increase your tax refund, giving you a cushion in case of unexpected expenses. 

So, make sure you claim the following 5 credits and deductions if you qualify: 

  • AOTC
  • LLC
  • Student Loan Interest
  • Educator Expense
  • EITC

And, here’s a final pro tip: Put your newfound money to work by opening an online savings account and earn interest on your tax refund. 

Kat Tretina is a freelance writer specializing in personal finance. Her work has been featured in publications like The Huffington Post, Entrepreneur, and MarketWatch.

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