If you paid tuition, fees, or interest on a student loan last year, you may be eligible for higher education tax credits or deductions.
To ensure families don’t inadvertently leave money on the table, Newark-based Sallie Mae, the nation’s saving, planning, and paying for college company, released new information to help families understand and take advantage of higher education tax credits and deductions.
According to the College Board, students and families saved about $17.9 billion in education credits and deductions in 2013, with the average family saving about $1,460.
According to “How America Pays for College,” an annual study conducted by Sallie Mae and Ipsos, only 37 percent of American families used tax credits and deductions as a way to help cover tuition costs in 2014-15.
“For families with children in college, tax season can bring additional savings through education tax credits and deductions, and those savings can be meaningful,” said Xavier Epps, C.E.O. and founder, XNE Financial Advising, LLC. “It’s worth doing a little homework and research to see if you qualify.”
Students and families should explore these various tax options to capitalize on savings. Families should keep in mind they may not claim more than one credit for the same student in any one year, and can’t take both a deduction and a credit in the same year.
- The American Opportunity Tax Credit. Eligible taxpayers may qualify for a maximum annual credit of $2,500 per student for the first four years of higher education. To be eligible, the student must be enrolled at least half-time in a degree or other recognized educational credential. The credit can be applied to course-related books and supplies in addition to tuition and fees. To receive the full credit, a single taxpayer can have 2015 income of up to $80,000, or a partial credit is available for income up to $90,000. For married filers, those with and adjusted gross income up to $160,000 are eligible for the full credit, and up to $180,000 for a partial credit.
- The Lifetime Learning Credit. Eligible taxpayers may qualify for up to $2,000 per tax return to help pay for undergraduate, graduate, and professional degree courses – including courses designed to improve job skills. There is no limit on the number of years an individual can claim the Lifetime Learning Credit. The Lifetime Learning Credit is available to taxpayers with modified adjusted gross income of less than $65,000, or $130,000 if filing jointly. The credit is reduced gradually for single filers making more than $55,000, and for joint filers making more than $110,000.
- Student Loan Interest Deduction. Student loan borrowers may be eligible for up to $2,500 in student loan interest deductions to offset income subject to tax. Available for both federal and eligible private education loans in repayment, single filers with a modified adjusted gross income of less than $80,000 and those with a joint modified adjusted gross income less than $160,000 qualify for this deduction. In 2013, 11.5 million taxpayers deducted $11.6 billion in student loan interest, generating about $1.7 billion in tax savings.
- Tuition and Fees Deduction. Students and families can use up to $4,000 in expenses for higher education to offset income subject to tax. This deduction is taken as an adjustment to income; however, an individual does not need to itemize other deductions. Individuals with a modified adjusted gross income of up to $80,000 and those with a joint modified adjusted gross income of up to $160,000 can file for this deduction.
“Higher education tax deductions and credits are intended to reduce college costs, so study up and claim them if you are eligible,” said Martha Holler, senior vice president, Sallie Mae.
Additional information on education tax credits and deductions is available through the Internal Revenue Service Publication 970, Tax Benefits for Education, or through a personal tax advisor.
