Claiming tuition for taxes can be a big help in reducing the amount of money you owe the Internal Revenue Service. There are restrictions for claiming this deduction, most notably that it must be considered “necessary” for your job or career and not just useful. Read on to learn more about claiming tuition for taxes, including what qualifies and how to do so correctly.
In this post, we find out if You Can Deduct Tuition For Taxes, is paying someone else tuition tax deductible, what college expenses are tax deductible for parents, and is private school tuition tax deductible.
If You Can Deduct Tuition For Taxes
Tuition is a big expense, and a lot of people have questions about how it’s taxed. Here’s what you need to know about claiming tuition for taxes.
Yes, you can!
You know how your taxes are due next week?
Well, you may be able to get a little more money back in your pocket if you’re willing to jump through a couple of hoops—and I’m not talking about the kind of hoop that makes you feel like the world’s biggest loser when it’s over. I’m talking about things like education credits and deductions. You can take advantage of these tax breaks even if you don’t itemize your expenses on Schedule A (deductions for charitable contributions), which means that even if your gross income is too low for any other deduction to matter, these will apply!
Here are some situations where these tax benefits might make a difference:
Read on to see in what situations.
If you are a student, and your tuition is paid for by someone else, you may be able to deduct the amount from your taxes. The IRS offers several conditions that must be met in order for this deduction to work:
- You must be enrolled in a degree-granting program at an eligible educational institution.
- Your coursework must lead toward a degree or some other recognized educational credential (for example, passing an exam that qualifies as professional certification).
- If you are taking classes just for fun or educational purposes without earning credit toward any kind of degree or certification, then those costs will not qualify as “qualified education expenses” under the tax code and cannot be deducted on your return.
If you are taking a class or two for fun or educational purposes that won’t lead to a degree, those courses aren’t tax-deductible.
If you are taking a class or two for fun or educational purposes that won’t lead to a degree, those courses aren’t tax-deductible.
For example, if you’re an accountant and want to learn Spanish, you can deduct tuition expenses for the Spanish classes. But if your company offers free language classes for employees and you take advantage of them as a way to spend more time with colleagues outside of work hours, those courses are not deductible on your taxes because they aren’t related to your career goals or academic degree.
The American Opportunity Tax Credit covers your first four years of college and covers the cost of books and materials as well as tuition and fees. It also covers part-time students, so long as they’re enrolled at least half time and haven’t completed the first four years of post-secondary education yet.
You can deduct tuition for taxes, but there are some conditions that need to be met.
The American Opportunity Tax Credit covers your first four years of college and covers the cost of books and materials as well as tuition and fees. It also covers part-time students, so long as they’re enrolled at least half time and haven’t completed the first four years of post-secondary education yet. If you have dependents who will be attending college this year, the Lifetime Learning Credit may apply to them as well; it allows taxpayers who paid qualified education expenses during the tax year up to $2k per person (up to $4k total). This credit is available on a per-tax return basis rather than a household basis, so it’s best suited for individuals rather than families with multiple students in school at once.
You can take up to $4,000 as an AOTC if your modified adjusted gross income is less than $80,000 or $160,000 if you’re married filing jointly; the credit is fully phased out if your MAGI is $90,000 or $180,000 for joint filers. Parents cannot claim the AOTC for their children anymore; the student must now claim the credit for himself.
If you’re eligible for the AOTC, the credit is partially refundable. This means that if your MAGI is below $80,000 ($160,000 for married filing jointly), your tax liability will be reduced by up to $1 and partially refunded as long as it doesn’t exceed $1.25.
If you’re not eligible for the AOTC, it’s possible that your child may be able to claim a credit on her own tax return based on her modified adjusted gross income (MAGI). The student must be enrolled at least half time in college or career school during 2018–19 and cannot have finished school before 2019–20. You can check out IRS Form 8863 for more information about how this works.
The Lifetime Learning Credit offers a maximum credit of $2,000 for tuition and related expenses per tax return for post-secondary education courses taken by any taxpayer or his dependents. The taxpayer does not have to be pursuing a degree or be enrolled at least half time but does need to file Form 8863 with his taxes.
The Lifetime Learning Credit offers a maximum credit of $2,000 for tuition and related expenses per tax return for post-secondary education courses taken by any taxpayer or his dependents. The taxpayer does not have to be pursuing a degree or be enrolled at least half time but does need to file Form 8863 with his taxes.
You must also have been enrolled in the program during the calendar year you’re claiming the credit for and received at least one academic credit. The IRS defines “academic” as generally accepted educational activities such as classes, workshops and independent study that meet the minimum requirement of maintaining an instructor/student relationship between you and your institution’s instructors (in most cases).
This is a nonrefundable tax credit, which means if you don’t owe any taxes this year you won’t get any money back from this deduction. If your total tax liability after all other deductions exceeds $1,000 per return, though—including this one—you can claim up to 50 percent of it on your Schedule 1 form when doing your taxes; so if take advantage of this deduction when filing this year then make sure that it only applies where needed!
is paying someone else tuition tax deductible
The tuition gift tax exclusion allows grandparents and other individuals to reduce their taxable estate while helping a child a child pay for college. Tuition payments made directly to an educational organization are exempt from gift taxes and the Generation-Skipping Transfer Tax. Grandparents do not have to file a gift tax form when money is paid directly to a college, even if the amount exceeds the $16,000 annual exclusion amount.
However, tuition payments made directly to a college can substantially reduce a student’s financial aid eligibility. One alternative is to contribute to a child’s 529 plan, which may have less of an impact on financial aid.
How the tuition gift tax exclusion works
Tuition payments made directly to a college are not considered gifts for tax purposes. By paying a school directly, grandparents can potentially move a significant amount from their taxable estate. Direct tuition payments are not counted toward the $16,000 annual gift tax exclusion amount and will not use up any of the individual’s $12.06 million lifetime gift tax exemption.
The tuition gift tax exclusion only applies to tuition payments. Money that is gifted to a child for other college expenses, such as books, supplies, room and board costs, do not qualify for the exclusion. According to the College Board’s 2018 Trends in College Pricing report, non-tuition expenses made up about 60% ($15,660) of the total budget for students who attended a 4-year in-state public college.
Financial aid impact
A tuition payment made directly to the college will reduce the student’s eligibility for need-based financial aid, but the actual impact will depend on the college. Most colleges treat a direct tuition payment as cash support, but some financial administrators argue that direct tuition payments fit the definition of estimated financial assistance.
Cash support is counted as untaxed income on the Free Application for Federal Student Aid (FAFSA). A student’s need-based financial aid eligibility is reduced by as much as 50% of the amount of their untaxed income.
Estimated financial assistance includes all scholarships, grants loans or other assistance the student receives that the college is aware of. These resources reduce a student’s eligibility for need-based financial aid on a dollar for dollar basis.
529 plans and gift taxes
One alternative to making tuition payments directly to a college is to contribute the money to a child’s 529 college savings plan. 529 plan contributions are considered gifts for tax purposes, and up to $16,000 qualifies for the annual gift tax exclusion.
Grandparents who want to make a larger 529 plan contribution may front-load up to $80,000 ($160,000 if married filing jointly) with 5-year gift-tax averaging, assuming no other gifts are made to the same child during that time period. With 5-year gift-tax averaging, or superfunding, individuals may contribute between $16,001 and $80,000 by treating the contribution as though it were spread evenly over a 5-year period.
With this strategy, grandparents who are 529 plan account owners may shelter a significant amount from their taxable estate while retaining control of the assets. However, if the grandparent dies within the 5-year period, the contribution is not considered a completed gift and a portion of the contribution will be added back to their estate.
Assets held in a grandparent-owned 529 plan are not reported on a student’s FAFSA, but distributions are counted as untaxed income to the grandchild. One way to reduce the negative impact on financial aid eligibility is to wait until January 1 of the student’s sophomore year in college to take a 529 plan distribution (wait until junior year if the student takes 5 years to graduate). By this time, the distribution should not affect financial aid eligibility, since the FAFSA uses the prior-prior year for income and tax information.
what college expenses are tax deductible for parents
Ben Franklin once said, “an investment in knowledge always pays the best interest.” And if you’re going to college to further your education and expand your mind, Uncle Sam offers a few tax breaks that can increase the return on your investment.
Some of the federal education tax credits, deductions, and exemptions are for people who are saving for college, while others help pay for tuition and books while you’re a student. There are also tax breaks that help with student loan debt once your days in the classroom are over. However, the rules can be tricky, and sometimes you can’t take advantage of one tax break if you already claimed another. So, it’s important to be up to date on all the rules all the time. Here’s a breakdown of 11 education tax breaks that can help you pay for college. No matter where you are on your quest for knowledge, there’s probably a tax break that can help your bottom line.
Rocky is a Senior Tax Editor for Kiplinger with more than 20 years of experience covering federal and state tax developments. Before coming to Kiplinger, he worked for Wolters Kluwer Tax & Accounting and Kleinrock Publishing, where he provided breaking news and guidance for CPAs, tax attorneys, and other tax professionals. He has also been quoted as an expert by USA Today, Forbes, U.S. News & World Report, Reuters, Accounting Today, and other media outlets. Rocky has a law degree from the University of Connecticut and a B.A. in History from Salisbury University.
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is private school tuition tax deductible
Private school can be expensive. Whether your children are already in private school or you’re considering it for the future, you’re probably looking for ways to save money. This post brings together the existing private school tuition tax credit and deduction programs from the federal government to the states and more.
Federal Tax Breaks
There is no simple federal tax credit or deduction for private K–12 educational expenses. Most of the federal education-related tax credits and deductions are geared toward higher education and career-furthering continuing education, but there are other federal programs, such as Coverdell Education Savings Accounts, that help parents save money on K–12 private schooling indirectly.
Coverdell Education Savings Account
Private school parents can take advantage of a Coverdell Education Savings Account to grow tax-free interest on their savings. Money contributed to a Coverdell account—up to $2,000 per year—grows with tax-free interest. The money parents spend from these accounts, also known as distributions, isn’t taxed so long as it is used for the beneficiary’s expenses at a qualified educational institution, including private elementary and secondary schools and private or public universities.
Parents who know early on that they’ll send a child to private K–12 school can begin saving in a Coverdell. Because the interest is tax-free, this is a better option for saving for private school expenses than a regular savings or investment account, where accrued interest is taxed.
Coverdell ESAs have limitations on contributions and distributions, and may have problematic maintenance fees and other charges associated with them. Fees vary by Coverdell ESA provider, and may affect low-balance accounts more than high-balance accounts. Also, money saved in a Coverdell can also affect potential college financial aid.
State-Based Tax Breaks
Some websites will say you can’t get any tax breaks for sending your kids to private schools from kindergarten through 12th grade, but that’s not entirely accurate. Some states do offer families tax relief for K–12 private school expenses.
Alabama, Illinois, Indiana, Iowa, Louisiana, Minnesota, Ohio, South Carolina and Wisconsin offer private school choice programs known as individual tax credits and deductions. This video explains how these credits and deductions work.
Each year, hundreds of thousands of taxpayers claim these state-based credits, and you could save anywhere from $100 to $10,000 based on your state’s programs. Exactly how much money you get back depends on where you live.
ALABAMA Alabama Accountability Act of 2013 Parent-Taxpayer Refundable Tax Credits Who Can Use It: Parents with children in schools classified as failing can apply when they transfer students to certain non-failing schools. Find out if I’m eligible. Average Value: $2,814. Worth lesser of 80 percent of annual state cost of attendance at K–12 or actual cost of children’s schooling.
ILLINOIS Illinois Tax Credits for Educational Expenses Who Can Use It: All taxpaying families with children who pay to send their kids to private school are eligible statewide. Homeschoolers can claim credit for qualified education expenses in excess of $250/year if they are the legal parent/guardian, parent and student were Illinois residents when expenses were paid, and student attended a school satisfying truancy law. Find out if I’m eligible. Average Value: $244. Allowed 25 percent of expenses after the first $250, but not to exceed $500 in a year.
INDIANA Indiana Private School/Homeschool Deduction Who Can Use It: Eligible child must be able to be claimed on parents’/guardians’ taxes and must be eligible to receive public K–12 education in an Indiana school corporation. Child must meet obligation for compulsory attendance. Find out if I’m eligible. Average Value: $1,811. Up to $1,000 per dependent can be claimed.
IOWA Tuition and Textbook Tax Credit Who Can Use It: All taxpaying families with children who pay to send their kids to private school are eligible statewide. Only the spouse claiming dependents can claim the credit. Find out if I’m eligible. Average Value: $133. Worth 25 percent of the first $1,000 paid for each dependent for tuition and textbooks.
LOUISIANA Louisiana Elementary and Secondary School Tuition Deduction Who Can Use It: All K–12 private school students in Louisiana are eligible. Find out if I’m eligible. Average Value: $5,481. Deduction is worth up to $5,000 per dependent. Parents can claim up to 100 percent of private school tuition paid per student per year.
MINNESOTA Minnesota Education Deduction Who Can Use It: Any parent or guardian who spends money on approved education expenses can receive the deduction. Qualifying child must attend school in MN, IA, ND, SD, or WI. Find out if I’m eligible. Average Value: $1,184. Tax deduction is worth 100 percent of the amount spent on education, up to $1,625 for grades K–6, $2,500 for grades 7–12.
Minnesota K–12 Education Credit Who Can Use It: Credit is phased out for taxpayers earning more than $33,500. The maximum allowable credit is reduced for income over this amount, depending on family size. Find out if I’m eligible. Average Value: $250. Refundable tax credit available for 75 percent of the amount spent on educational expenses other than tuition, up to $1,000 per child.
OHIO K–12 Home Education Tax Credit Who Can Use It: All Ohio students who are excused from the state’s compulsory attendance law for the purpose of home instruction are eligible. Find out if you’re eligible. Maximum Value: $250. This nonrefundable tax credit is worth up to $250 for qualifying home education expenses, including books, supplementary materials, supplies, computer software, applications or subscriptions.
K–12 Nonchartered Private School Tax Credit Who Can Use It: Families are eligible to receive the tax credit if at least one of their dependents is enrolled in a nonchartered private school and their total annual household income is less than $100,000. Find out if you’re eligible. Maximum Value: $1,000. Eligible families with a total annual household income of less than $50,000 may receive up to a $500 tax credit. Eligible families with a total annual household income that is between $50,000 and $100,000 can get back up to $1,000.
SOUTH CAROLINA South Carolina Refundable Educational Credit for Exceptional Needs Children Who Can Use It: Parents of students designated by the Department of Education as a “child with a disability.” Students who have been diagnosed within the past three years of an acute or chronic condition that significantly impedes the student’s ability to succeed in school (ie. deafness, blindness, orthopedic disability, neurodevelopmental disability, etc.) also qualify. Parents must also believe the public school district does not meet the student’s needs, and student must attend an independent school. Find out if I’m eligible. Average Value: $7,353. Worth the lesser of (1) $11,000 per student or (2) their children’s actual cost of attending school.
WISCONSIN Wisconsin K–12 Private School Tuition Deduction Who Can Use It: Any Wisconsin taxpayer who pays private school tuition for their child is eligible for this deduction. Find out if I’m eligible. Average Value: $4,912. Deduction is worth up to $4,000 per child in grades K–8 and up to $10,000 per child in grades 9–12.
529 Plans for K–12 Expenses
Section 529 savings plans are state-based programs that have been around for decades to help families save for their children’s future college expenses, but the federal government recently changed the rules so these plans can be used for K–12 education, such as private school tuition. The Tax Cuts and Jobs Act of 2017 allows parents to use up to $10,000 per year from a 529 account to cover private K–12 expenses. However, not all states have yet opted to follow the new federal rules for private K–12 expenses, so be sure you understand how different states’ rules work before making a withdrawal.
Here’s a quick overview of what you should know:
• You don’t have to live in a state to open a 529 account there, so many families shop around for the best plan.
• A 529 plan allows you to invest money tax-free as long as you use the withdrawals only for qualified expenses. In this way, it’s similar to a 401(k) or IRA, but it’s specifically for education. Paying no taxes on the interest you earn means the money can grow more quickly.
• On the federal level, qualified 529 plan withdrawals are free from income taxes or capital gains taxes. The actual savings you earn will depend on your tax bracket. People in higher tax brackets will see greater savings than those in lower tax brackets.
• The majority of states that have an income tax also offer income tax benefits on qualified 529 withdrawals. Rules vary state to state.
• Many states also offer in-state taxpayers incentives, in the form of credits or deductions, for contributing to a 529 account. Again, though, the rules vary from state to state.