Education Tax Benefits

American Opportunity Tax Credit

  • The full credit is available to individuals whose modified adjusted gross income is $80,000 or less, or $160,000 or less for married couples filing a joint return.  The credit is phased out for taxpayers with incomes above these levels.  The new credit makes the former Hope Credit available to a broader range of taxpayers, including many with higher incomes and those who owe no tax.  It also adds required course materials to the list of qualifying expenses and allows the credit to be claimed for four post-secondary education years instead of two.  Many of those eligible will qualify for the maximum annual credit of $2,500 per student.

Lifetime Learning Tax Credit

  • The Lifetime Learning provides a federal income tax credit of up to $2,000 per taxpayer based on the first $10,000 in postsecondary tuition and fees paid by the taxpayer during the tax year. The Lifetime learning tax credit is 20% of the first $10,000. The tax credit may be received for an unlimited number of years.

Student Loan Interest Deduction

  • Borrowers of federal and private education loans may deduct up to $2,500 in interest as an above-the-line exclusion from income. This deduction may be taken even if the taxpayer does not itemize.

Employer Tuition Assistance

  • Your employer may provide you with up to $5,250 in employer education assistance benefits for undergraduate or graduate courses tax-free each year. The benefits must have been paid for tuition, fees, books, supplies, and equipment. Travel, lodging, and meals are not included. Courses involving sports, games, or hobbies are not included, unless they are required as part of a degree program or are related to the business of your employer. (Payments above $5,250 may also be tax-free, if they represent a working condition fringe benefit. This means that if you had paid for the expenses, you would have been able to deduct them as an employee business expense.)

Tuition and Fees Deduction

  • Taxpayers may deduct up to $4,000 in tuition and fee expenses as an above-the-line exclusion from income. This deduction may be taken even if the taxpayer does not itemize. The deduction is currently set to expire at the end of 2011.

Learn more from the IRS Publication on Education Credits