Just in time for 2014’s tax season, we’re here to shed light on tax credits for students, which have been made widely available this year.
In fact, there are so many tax breaks for students available for the 2013 tax year that you should be able to save at least a couple thousand dollars if you’re still in school.
Take advantage of as many of these deductions, credits and write-offs as you can, because they were created specifically to help motivate you to get an education so you can land a higher paying job, then pay the Government more in tax revenue each year.
The College Tuition & Fees Tax Deduction
First up is the tuition and fees deduction program, which is available to everyone enrolled in college courses, and offers up to a $4,000 deduction (meaning your taxes are determined by $4,000 less total income).
The way this program works is that you’re able to deduct the cost of tuition, school fees and other education-related expenses that you actually paid for during the 2013 tax year.
Things you can write off include tuition, books, school supplies, required equipment or other things that were directly required by your college or other higher education program.
Eligibility Guidelines
- You can deduct qualified education expenses for yourself, your spouse, or a dependent
- These expenses have to related to higher education costs (post-high school), and can include tuition or other required fees and expenses, like books, school supplies, equipment, etc.
- You don’t need to use an itemized tax return to claim this deduction, unless you’re planning on claiming it as a business expense
- You cannot claim this deduction if you’re also claiming the American Opportunity Tax Credit or the Lifetime Learning Tax Credit (those are explained below)
- You cannot claim this deduction if you paid for any the qualified education expenses using a tax-free scholarship, grant, education savings account (like the Coverdell education savings account), tax-fre savings bond interest, or employer or veteran education assistance programs, or if you or your spouse was a nonresident alien during any part of tax year 2013
- You cannot claim this deduction if you make more than $80,000 and are filing single, or $160,000 if you’re married and filing jointly
- You cannot claim this deduction if you’re married and filing separately, or if you may be claimed as a dependent on anyone else’s tax return
How To Claim The Deduction
This part’s easy, all you’ve got to do is complete Form 8917 and include it with your 2013 tax return.
And for the same information straight from the horse’s (IRS’s) mouth, visit their page on the Tuition and Fees Deduction here.
Higher Education Tax Credits
The following programs were both created by the Federal Government to encourage people to go to college, acquire specialized knowledge and skills, land a higher paying job and end up paying more in taxes each year.
There’s a drawback to using these programs though, the first being that if you claim a tax credit for students, then you won’t be able to also claim tuition and tax deduction outlined above.
Additionally, while there are two tax credits available, you can only claim one of them each year (for the same student, either yourself or a dependent).
What that means is that you’ll have to find out which of the tax credits, or the tuition and tax deduction is going to save you the most money, then use that to maximize savings on your return.
Here are the two tax credits still available (the old “Hope Credit” program has been officially discontinued).
1. The American Opportunity Tax Credit
The American Opportunity Credit offers quite a bit of potential savings, with up to $2,500 in credit per qualifying student.
This tax credit was created under the American Recovery and Reinvestment Act passed in 2009, which made higher education tax credits available to a much wider population of both students and their parents.
This program essentially replaced the Hope Credit, and was only supposed to be in existence through 2010, but was extended through 2017, and President Obama’s administration is now promoting that it be made permanent.
The credit has pretty generous eligibility qualifications, making it available to virtually everyone enrolled in school, or paying for a dependent to go to school.
Eligibility Guidelines
- Each qualifying student provides a credit of up to $2,500 for fiscal tax year 2013
- Each qualifying student must be enrolled in courses at least half time
- Even if you don’t owe any taxes, you can receive up to $1,000 for each student, since this credit is partially refundable
- The credit can only be applied to costs generated during the first four years of post-secondary education for an undergraduate degree program, or recognized education credential
- The credit can only be applied to costs like tuition and fees, books, supplies and other equipment directly required for the qualifying education program
- The credit can only be claimed if you are filing single and claiming less than $90,000, or filing married and jointly with less than $180,000 in combined income
To read the IRS’s own words on this program, check out their page here, or their Q&A page here.
2. The Lifetime Learning Tax Credit
The Lifetime Learning Tax Credit offers slightly less than the American Opportunity Tax Credit, at up to $2,000 of credit for each qualifying student.
Unlike the American Opportunity Credit though, this one doesn’t have a limitation on the number of years of higher education that qualify, so even if you’ve been in college for 10 years, you can still claim it.
Since it lacks that limitation, this program is especially beneficial to grad students, or parents funding graduate study.
Eligibility Guidelines
- Each qualifying student provides a credit of up to $2,000 for fiscal tax year 2013
- The credit cannot be claimed if you don’t owe any taxes, because it’s not refundable at all
- The credit can be applied to costs generated during any year of post-secondary education, and it doesn’t need to be used for degree programs or recognized credentials (it can be applied to any program that offers classes to improve job skills, which means virtually anything)
- The credit can only be applied to costs like tuition and fees, books, supplies and other equipment used for education expenses
- The credit can only be claimed if you are filing single and claiming less than $60,000, or filing married and jointly with less than $120,000 in combined income
For the IRS’s official rules on this program, check out their page here.
Student Loan Interest Deduction
For those of you who aren’t students, or paying for anyone to go to school, the above programs don’t offer any assistance.
Fortunately, there’s some help for those of us who aren’t students, don’t have student dependents, but are paying off student loans.
The Student Loan Interest Tax Deduction Program allows you to deduct up to $2,5000 from your 2013 tax return, offering some significant savings!
Eligibility Guidelines
- You must have paid interest on a “qualified” student loan during the 2013 tax year
- You must be legally obligated to pay interest on the “qualified” student loan
- You must not have a filing status of married, filing separately (this rule seems arbitrary, but it’s real)
- You must not (and your spouse must not, if you’re filing jointly) be claimed as dependents on someone else’s tax return
- You must have have a modified adjusted gross income less than $70,000 if you’re filing as single, and less than $145,000 if you’re married and filing jointly
What’s a “Qualified” Student Loan?
Qualified student loans are specific as loans taken out “solely to pay qualified higher education expenses”. The IRS expands on this definition with their Tax Benefits for Education paper (Publication 970), which you can view directly from their website, here.
Questions?
For questions regarding any of these programs, or other issues related to your 2013 tax return, feel free to reach out to us in the comments section below.
We’ll do our best to get you a response within 48 hours.
Oh, and don’t delay in filing your return, since the sooner you file, the sooner your refund check will appear. Good luck!
By: Tim Marshall
Tim's experience struggling with crushing student loan debt led him to create the website Forget Student Loan Debt in 2011, where he offers advice, tips and tricks for paying off student loans as quickly and affordably as possible.