Managing college costs – whether it’s for yourself or someone else – can be expensive. Claiming tax deductions and credits for qualified education expenses could help you get some of what you paid back when you file your return.
When are higher education expenses tax deductible? We break it down for you in this simple guide.
Tax deductible college expenses explained
The IRS sets the guidelines for which college expenses are deductible (or eligible for a tax credit) at the federal level. The following higher education expenses are tax-deductible under the current tax code rules.
- Student loan interest. Student loan interest is tax-deductible for taxpayers whose modified adjusted gross income (MAGI) is less than $80,000 (or $160,000 for joint filers). The deduction can reduce taxable income by up to $2,500.1
- Business deductions for work-related education. Eligible employees and self-employed individuals may be able to deduct costs paid for work-related education. You have to be working, itemize your deductions on Schedule A, and file Schedule C with your tax return to be eligible.¹
- Tuition and fees. Tuition and fees were tax-deductible at one time, though the deduction went away after 2020. It’s worth mentioning here, however, as future changes to the federal income tax code could always bring the deduction back.²
Deductions can help you save you money at tax time. The more deductions you claim, the bigger your tax refund could be if you’re owed one. You could use that money to save, pay down other debts, or fund a different financial goal.
What doesn't count as a tax-deductible expense?
The IRS is clear about what you can deduct from your taxes where education is concerned. There are also rules about which expenses are eligible for tax credits. Broadly speaking, qualified education expenses include tuition, fees, and other costs required for enrollment at an eligible school.
But there are a few expenses that don’t qualify, including:
- Room and board
- Medical expenses, including student health fees
- Personal, living, or family expenses
- Expenses for sports, games, hobbies, or non-credit courses unless the course or activity is part of the student’s degree program³
You can use student activity fees to qualify for an education tax credit, but only if you’re required to pay them to enroll or attend school.
For example, if your school expects you to pay a fee each semester or academic year to support on-campus organizations, regardless of whether you participate, you could count those fees as qualified tuition-related expenses when claiming an education tax credit.
8 education-related tax deductions and credits
Making sense of the tax rules surrounding education expenses can get confusing, but it pays to know which deductions and credits you might qualify for if you have years of college to pay for. Here’s how the different tax breaks for education compare.
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).⁴
Here’s how it works:
- Eligible filers 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, so you’d get 40% of that amount – $800 – sent as part of your tax refund.
Here are some rules to know about claiming the credit.
- 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 file a joint return.
- 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.⁴
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).⁵
Unlike the AOTC, there is no limit to how many years you can claim the LLC, so you can use it throughout your education. 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 a full credit if your MAGI is under $80,000 ($160,000 for married couples filing a joint return).
- You can claim a partial credit if your MAGI is between $80,000 and $90,000 ($160,000 to $180,000 for married couples filing jointly).
- You can’t claim the credit if your MAGI is $90,000 or more ($180,000 or more if you’re filing jointly).⁵
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.⁵
3. Student loan interest deduction
As mentioned, the IRS no longer offers a deduction for tuition and fees. However, if you took out qualified student loans to pay for school you can deduct the interest you paid on them.
Here’s how it works:
- You can deduct $2,500 or however much you paid in interest during the tax year 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.⁶
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. Filers get:
- The full deduction if they made less than $75,000 ($155,000 when filing jointly).
- A partial deduction if they made between $75,000 and $90,000 ($155,000 and $185,000 when filing jointly).
- No deduction if they made more than $90,000 ($185,000 when filing jointly).⁷
4. Educator expense deduction
If you’re a teacher or educator, you can write off up to $300 that you spent on business expenses and course materials such as books, supplies, athletic equipment (physical education teachers only), or computer equipment that you use in the classroom. The deduction doubles to $600 for married couples filing jointly if both are educators.⁸
As with any tax write-offs, there’s some fine print:
- The deduction is only for educators (teachers, principals, counselors, instructors, and student aides) working with kindergarten through 12th grade students. (Sorry, college professors.)
- Educators must have worked at least 900 hours during the tax year.⁸
5. Work-related education expense deduction
As mentioned, you may be able to deduct education expenses related to career advancement. Eligible students who can claim this deduction 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 officials⁹
This deduction comes with even more fine print than usual. If you plan to take this deduction, check out the IRS’s complete guidelines or work with a professional tax preparer to make sure you’re claiming it correctly.
6. 529 college savings plans
A 529 college savings plan offers multiple tax advantages, including tax-free growth and tax-free distributions when the money is used for higher education expenses for a qualified student. These plans are considered a parental asset for financial aid purposes. However, there’s one thing you won’t get at the federal level, and that’s a deduction or credit for making contributions.¹⁰
It’s possible, however, to take advantage of a state tax break if one is offered. Some states extend tax incentives to eligible savers who contribute to their plans. Depending on which plan you contribute to and where you live, you might be able to claim a deduction or credit for the amounts you put in when it’s time to handle your tax filing.
Here are a few things to know about 529 plans:
- All 50 states offer at least one.
- You can contribute to a 529 on behalf of any eligible student, which can include yourself, your spouse, your child, or another relative.
- You don’t necessarily need to live in a specific state to contribute to its 529 plan, but you may need to be a resident to claim tax benefits.
- The plan sets lifetime contribution limits and investment options.¹¹
Checking your plan’s guidelines and state tax laws can give you an idea of what you might qualify for.
7. 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. While not exclusively designed for students and recent grads, this tax credit helps individuals and families with low-to-moderate income levels.¹²
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.
What are the Earned Income Tax Credit thresholds, and how much can you get back? It depends on your filing status and how many dependents you have. Here are the most recent income limits.¹³
|Number of kids
|Maximum adjusted gross income
|$2 to $600
|$9 to $3,995
8. Coverdell Education Savings Account (ESA)
A Coverdell Education Savings Account (also referred to as an education IRA) offers an additional way to save for college on a tax-advantaged basis. You can open one of these accounts alongside a 529 college savings plan, or instead of one.
Here are some of the rules to know about ESAs:
- You can open them for an eligible student under the age of 18 and make annual contributions up to their 18th birthday.
- Contributions grow tax-deferred and qualified withdrawals are tax-free.
- All the money in the account must be withdrawn by the student’s 30th birthday to avoid a tax penalty.¹⁴
- The annual contribution limit is $2,000 per beneficiary.
There are no tax breaks for taxpayers who make Coverdell ESA contributions. However, using one to save for college could still be worth it if you want to make tax-free withdrawals to pay for school.
Claiming deductions can make paying for college less taxing
Getting an education can take a financial toll, but tax benefits can help you get back some of that money. Knowing the difference between a tax deduction and a credit and which ones you might be able to snag could help you get the biggest boost possible when filing your return. Just keep track of the expenses you pay for school throughout the year, including student loan interest and any costs that come directly out of your pocket.
Are you planning to help your child or another student with education costs? Learn the best ways to save for college now.
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.³
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 $300 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.