Federal Tax Benefits
The federal government provides several tax incentives that can help defray the cost of higher education. These incentives come in the form of:
- Tax credits, which directly reduce the amount of tax you are liable for; and
- Tax deductions, which reduce the amount of income that you pay taxes on.
You may qualify to use more than one of the benefits, but there are some restrictions against this as well. All of the tax credits and deductions are means-tested and phased out at high-income levels. We recommend that a tax expert be consulted to determine available benefits.
Tax Credits
Education tax credits are claimed on IRS Form 8863. More details on these and other education-related tax breaks are outlined in IRS Publication 970, Tax Benefits of Education.
The American Opportunity Tax Credit (AOTC) is a credit for qualified education expenses paid for an eligible student for the first four years of higher education. You can get a maximum annual credit of $2,500 per eligible student. If the credit brings the amount of tax you owe to zero, you can have 40 percent of any remaining amount of the credit (up to $1,000) refunded to you.
Eligibility qualifications apply.
The lifetime learning credit helps parents and students pay for post-secondary education.
For the tax year, you may be able to claim a lifetime learning credit of up to $2,000 for qualified education expenses paid for all students enrolled in eligible educational institutions. There is no limit on the number of years the lifetime learning credit can be claimed for each student. However, a taxpayer cannot claim both the American Opportunity Tax Credit and Lifetime Learning Credit for the same student in one year. Thus, the Lifetime Learning Credit may be particularly helpful to graduate students, students who are only taking one course, and those who are not pursuing a degree.
If you pay qualified education expenses for more than one student in the same year, you can choose to take credits on a per-student, per-year basis. This means that, for example, you can claim the American Opportunity Tax Credit for one student and the Lifetime Learning Credit for another student in the same year.
Tax Deductions
Generally, personal interest you pay, other than certain mortgage interest, is not deductible on your tax return. However, if your modified adjusted gross income (MAGI) is less than $80,000 ($160,000 if filing a joint return), there is a special deduction allowed for paying interest on a student loan (also known as an education loan) used for higher education. Student loan interest is the interest you paid during the year on a qualified student loan. It includes both required and voluntary interest payments.
The student loan interest deduction is taken as an adjustment to income. This means you can claim this deduction even if you do not itemize deductions on Schedule A of Form 1040.
This is a loan you took out solely to pay qualified education expenses 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 of time before or after you took out the loan.
- For education provided during an academic period for an eligible student.
1098-T Statement
You will receive information about your annual educational expenses in a 1098-T statement by January 31 each year. You can sign up to receive this form electronically or by mail to the home address of record.
Iona University, like most schools, reports charges and awards posted to your student account for the tax (calendar) year. We do not report on the basis of payments made.