Education tax benefits cheat sheet
Teachers and students are back in the classroom – and may need some education on the education tax benefits that can help them with their expenses.
“Education tax benefits, which can save students or their parents as much as $2,500, are commonly overlooked,” said Lynn Ebel, manager at The Tax Institute at H&R Block. “So many taxpayers miss these benefits because of their complexity. Depending on the kind of academic program, what year the student is in, income and other factors, a student may qualify for several different tax benefits so it’s important to choose the one that maximizes tax savings.”
Education tax benefits for students and their parents
The Lifetime Learning Credit, up to $2,000, is for taxpayers who pay education expenses, such as tuition and fees, for themselves, their spouses or their dependents. This credit does not require the student to pursue a degree, making this an option for anyone acquiring or improving their job skills through an eligible educational institution. More detailed eligibility requirements relate to a taxpayer’s income and filing status.
The American Opportunity Credit, up to $2,500, is for taxpayers who pay tuition and fees and purchase course materials for themselves, their spouses or their dependents. The credit has more restrictions than the Lifetime Learning Credit, but on the up side, it can also be claimed for the cost of books and other course materials.
Only one Lifetime Learning Credit can be claimed each year whereas the American Opportunity Credit can be claimed for any number of eligible students. However, a taxpayer cannot claim both the Lifetime Learning and the American Opportunity credits for the same student in the same year, so taxpayers will need to study up on which credit better suits their specific situation. Proper planning can maximize educational tax benefits.
“Taxpayers should keep their Form 1098-T as well as accurate records of tuition and expenses so they can claim all the benefits they’re entitled to,” said Ebel.
When students start repaying their student loan, they can start deducting the interest – even if they don’t itemize their deductions. The maximum $2,500 deduction is “above the line,” meaning they don’t have to file a more complicated tax form to claim the benefit. This is a per tax return limitation, so married couples who are both repaying student loans cannot deduct more than $2,500 annually on their joint return.
Taxpayers can deduct student loan interest they pay on a loan they took out for themselves, their spouse or a dependent if they are the ones who are legally responsible for repaying the dependent’s loan. However, a parent cannot deduct student loan interest on a loan their child is responsible for repaying. Once the child is no longer claimed as a dependent, the child may deduct the student loan interest. If the parents make any loan payments on the child’s behalf, the payments are treated as a gift to the child and the child is treated as repaying the loan.
Tax benefits also available for teachers
Teachers for kindergarten through 12th grade can deduct up to $250 for classroom expenses, whether or not they itemize their deductions. The $250 limit is indexed for inflation.
Teachers may qualify to deduct some of their required continuing education expenses as an employee business expense. The teacher’s miscellaneous expenses must be more than two percent of adjusted gross income. Only the excess is deductible.
By Annelise Wiens
As the newsroom editor, Annelise Wiens is interested in more than just tax and industry news, but the stories of H&R Block's 80,000 associates, their communities and H&R Block's world headquarters in Kansas City, Missouri. Wiens joined H&R Block in 2014 from a public relations agency, where she worked with clients in the financial services industry. Before that, she worked as a communicator for a senior member of the United States House of Representatives. She graduated from Biola University in La Mirada, CA with a degree in history.