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Students and recent graduates are grappling with high education costs and a tough job market. But each April offers a glimmer of hope to everyone who could use an influx of cash: the coveted tax refund.
The key to maximizing your refund is knowing which tax credits and deductions you qualify for. As a student, recent college graduate, educator, or someone who’s still paying off student loans, there are special tax write-offs that can put more cash in your pocket.
To help you get every dollar you’re entitled to receive in the way of a tax refund, we’ve rounded up the educational tax credits and deductions available to you.
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.
Here are two core tax terms you should know:
- Tax deductions: Tax deductions lower your taxable income. For example, if you make $50,000 per year and have $20,000 in tax deductions, you’ll only pay taxes on $30,000 of your income. For the 2022 tax year (filing in 2023), nearly everybody can take the standard deduction ($12,950 for individuals). Some filers may get a larger deduction by itemizing.
- Tax credits: By contrast, a tax credit is a dollar-for-dollar reduction in what you owe. For instance, if your tax bill is $500, but you have $500 in tax credits, you’d have a tax bill of $0. Some tax credits are refundable, meaning they could result in the government owing you a refund.
By claiming all 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.
6 education-related tax deductions and credits
As a college student or recent college graduate, your education is likely one of your biggest expenses. But is any of it deductible when you file your taxes?
While you can’t deduct the full cost of your tuition and expenses, there are six 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).²
Eligible filers will receive 100% of the first $2,000 spent on education expenses. They can get up to $500 more in credit if they spend $2,000 in additional educational expenses (credited at 25% after the first $2,000). The potential total credit is $2,500.
The American opportunity credit is partially refundable. If the credit brings your tax bill to $0, you can have 40% 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 be $80,000 or less, or $160,000 or less if you’re married and filing jointly.
If your parents claim you as a dependent on their taxes, they can apply for the tax credit instead. Check with your parents to see if they plan to claim you as a dependent.
Parents with more than one dependent student are eligible for multiple American opportunity tax credits each filing year.
Know before you file: Here’s how to determine which tax bracket you’re in.
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).³
Unlike the AOTC, there is no limit to how many years you can claim the LLC, so you can use it throughout your educational career. To qualify, you must take courses toward a degree or to improve your job skills, at an eligible educational institution.
Eligibility for the lifetime learning credit – and the size of the tax credit – depends on your modified adjusted gross income:
- You can claim the full credit if you make less than $59,000 per year ($118,000 when filing jointly).
- You can claim a partial credit if you make between $59,000 and $69,000 ($118,000 and $138,000 when filing jointly).
- You can’t claim the credit at all if your MAGI is $69,000 or more ($138,000 or more if you’re 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.
Parents claiming a student as a dependent can only claim up to $2,000 in credits per year, even if they have multiple eligible dependent students.
3. Student loan interest 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 aren’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 deduction, you can deduct $2,500 or however much you paid in interest during the tax year on qualified education loans – whichever is less.4 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.
The best part? The student loan interest deduction counts as an adjustment to income, so you can still claim this one even if you take the standard deduction.
Like other deductions and credits, you may be ineligible if your MAGI is too high.5 Filers get:
- The full deduction if they made less than $70,000 ($145,000 when filing jointly).
- A partial deduction if they made between $70,000 and $85,000 ($145,000 and $175,000 when filing jointly).
- No deduction if they made more than $85,000 ($175,000 when filing jointly).
4. Educator expense deduction
If you’re a teacher or educator, you can deduct up to $250 that you spent on business expenses like books, supplies, athletic equipment (physical education teachers only), or computer equipment that you use in the classroom.6
As with any tax write-offs, there’s some fine print:
- The deduction is only for educators (teachers, principals, counselors, instructors, and student aides) who work with students in kindergarten through 12th grade. (Sorry, college professors.)
- Educators must have worked at least 900 hours during the tax year.7
5. Work-related education expense deduction
If you spent money on education to advance your career, the expenses may be deductible. Eligible students include:
- Armed Forces reservists
- Self-employed individuals
- Individuals with disabilities who have education expenses related to an impairment
- Qualified performing artists
- Fee-based state or local government officials
This deduction comes with even more fine print than usual. If you’re planning to take this deduction, check out the IRS’s complete guidelines – or work with a professional tax preparer.
6. 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.8 While not exclusively designed for students and recent grads, it helps individuals and families with low income levels.
What are the thresholds for the Earned Income Tax Credit, and how much can you get back? It depends on your filing status and how many dependents you have:
|Number of kids||Maximum adjusted gross income||Maximum credit|
Note: There is a $10,300 maximum on investment income.
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 with educational credits and deductions
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.
Claim the following six credits and deductions if you qualify:
- American opportunity tax credit
- Lifetime learning tax credit
- Student loan interest deduction
- Educator expense deduction
- Work-related education expense deduction
- Earned Income Tax Credit
Is college tuition tax deductible?
Students could previously take advantage of a deduction for college tuition and fees, but the IRS has since discontinued that deduction. That said, students (or parents claiming students as dependents) can take advantage of two educational tax credits: the American opportunity tax credit (partially refundable) and the lifetime learning credit (not refundable).
What is the American opportunity tax credit?
The American opportunity tax credit is an educational tax credit available to students (or parents of dependent students) during the first four years of higher education. Eligible filers will earn up to $2,500 in credits for qualifying education expenses during the tax year – and the AOTC is partially refundable, meaning it could result in Uncle Sam owing you some money.
What education expenses are tax deductible?
Some education expenses are tax deductible. For example:
- Students can qualify for a student loan interest tax deduction.
- Educators can deduct up to $250 on certain classroom expenses.
- Certain filers can qualify for work-required education expenses.
In addition, some education expenses are eligible for tax credits:
- Students who are eligible for the AOTC can earn credits for qualified education expenses, including tuition, books, and supplies. Room, board, and transportation do not qualify.
- Students who are eligible for the LLC can also earn credits for qualified education expenses, including tuition and enrollment fees.
Get rewarded for learning
Education is important – but expensive. Whether you’re currently enrolled and paying for books and courses or have graduated but are still making student loan payments, you could probably use a break.
Take the time this tax season to find all the education-related tax credits and deductions you deserve. You may end up with a sizable refund check that can help you with next semester’s tuition costs – or at least a much-needed night out.