If you paid for college education expenses in the last year, you may be able to save money on your taxes by claiming the American opportunity credit or lifetime learning credit or opting for the tuition and fees deduction. The American opportunity credit is generally the most valuable if you qualify.

You can claim these education tax credits and deductions even if you paid with a student loan. Parents can take advantage, too, so long as they don’t choose a married filing separately status. Here’s what to know about each option. Let’s take a closer.

• Do you get a Tax Credit for being a College Student?
• What can you Write off as a College Student?
• Is there a College Tax Credit for 2021?
• Can I claim my College Student on my Taxes 2021?
• Should College Student File their own Tax Return?
• How to File Taxes as a College Student
• What Should you Know About College and Taxes?
• Who Qualifies for College Tax Credit?
• Can I Claim Tuition on my Taxes?

Do you get a Tax Credit for being a College Student?

Tax credits and tax deductions for college students can help offset the cost of school or repaying a loan. Credits and deductions can help you pay less income tax by lowering your tax liability dollar-for-dollar or reducing your taxable income.

Read Also: Should you Pay off Student Loans While in College?

You can use these tax breaks for yourself if you’re currently a student, or for your spouse or a dependent child if they are the one in school. College students can only claim one tax credit a year, but parents supporting more than one child in college can claim tax credits, in some cases, on a per-student basis. 

American Opportunity Credit

With the American Opportunity Tax Credit, taxpayers are eligible to claim a credit of up to $2,500 for the first four years of post-secondary education for tuition and fees, course-related books, supplies, and equipment. Couples filing jointly whose adjusted gross income (AGI) is less than $160,000 and single filers whose AGI is less than $80,000 are eligible to claim the credit for each student in the family.

The benefit begins to phase out for joint filers who earn between $160,000 and $180,000, and for single filers who earn between $80,000 and $90,000. The credit is not available to taxpayers who are married but file separately.

And since 40% of the credit is refundable, that means filers can get back up to $1,000 of the credit as a refund (if the taxpayer is not subject to kiddie tax).

Lifetime Learning Credit

The Lifetime Learning Tax Credit allows students of undergraduate, graduate, and professional degree programs with an AGI below $58,000 (single filers) or $116,000 (married, filing jointly) to claim up to a $2,000 non-refundable tax credit for education-related expenses on a per tax return basis. The credit is not available to taxpayers who are married but file separately.

Joint filers who earn more than $116,000 but less than $136,000, and single filers who earn between $58,000 and $68,000 are still eligible, but the benefit is gradually reduced.

While the IRS does not allow taxpayers to claim both the Lifetime Learning Credit and the American Opportunity Credit for the same individual in the same year, both can be claimed on a single tax return where two students qualify individually.

Student-loan interest deduction

If you’ve taken out a federal or private student loan, you’re eligible to deduct up to $2,500 worth of interest paid on the loan as an “above-the-line” deduction from your gross income. You don’t have to itemize your deductions in order to claim it, but you cannot be dependent on another person’s tax return.

Taxpayers with a modified adjusted gross income (MAGI) below $70,000 if single or $140,000 if filing jointly, are eligible for the full deduction. The allowable deduction will phase out if you’re a single filer with a MAGI above $70,000 and below $85,000 or a joint filer with a MAGI above $140,000 but below $170,000.

Tuition and fees deduction

The tuition and fees deduction was renewed for tax year 2019 after a last-minute government spending bill was signed by President Donald Trump in December. 

If you paid for tuition, books, supplies, or equipment for a degree program in which you, your spouse, or your dependent were — or are currently — enrolled, you could be eligible to reduce your taxable income by up to $4,000. The deduction is taken above-the-line, meaning you don’t have to itemize deductions to claim it. You can’t, however, claim this deduction along with any tax credits.

If your MAGI was less than $65,000 as a single filer or $130,000 as married filing jointly, you can claim a maximum deduction of $4,000. If your MAGI was more than $65,000 but less than $80,000 as a single filer, or more than $130,000 but less than $160,000 as married filing jointly, you can claim a maximum deduction of $2,000.

If you earned more than $80,000 as a single filer or $160,000 as a joint filer, or you’re married and file separately, you aren’t eligible for the deduction.

What can you Write off as a College Student?

Rising costs of tuition and other higher education expenses make federal income tax breaks for college costs attractive for many households. In addition to pre-college savings plans, these tax write-offs can reduce annual income tax obligations as well as adjusted gross income.

Lower adjusted gross income results in more financial aid for a student. Tax write-offs include credits and above-the-line deductions for books, tuition and fees, and student loan interest deductions.

Tuition and Fees Deduction

A tax deduction for tuition and fees of up to $4,000 is available to single taxpayers with an adjusted gross income below $65,000 and to married couples filing jointly with an AGI of less than $130,000. The deduction is reduced to $2,000 for singles with an AGI of between $65,001 and $80,000 and married couples filing jointly with an AGI of between $130,001 and $160,000.

This deduction is also reduced if you use other tax-advantaged education funds to pay your schooling costs. Take the deduction directly on Form 1040 or 1040A, without having to itemize deductions on Schedule A. Married couples filing separately cannot claim this deduction.

Student Loan Interest

College loan interest may also be written off, subject to certain income restrictions. For single taxpayers with an adjusted gross income of less than $60,000 or married couples filing jointly with an AGI of less than $125,000, the maximum write-off is $2,500. This amount is phased out at an AGI of $75,000 and $155,000, respectively, for singles and married couples filing jointly.

American Opportunity Credit

The American Opportunity credit permits deductions for: tuition; student-activity fees paid as a condition of enrollment and attendance; and expenses for books, supplies and equipment needed for a course of study. The credit is available for no more than four years of your own study, that of your spouse or that of any dependent you claim on your income taxes, provided that the student carries at least half of a full load of college coursework.

This credit is phased out for adjusted gross incomes of $160,000 to $180,000 for married couples filing jointly and $80,000 to $90,000 for single taxpayers; married couples filing separately are ineligible for the credit.

Lifetime Learning Credit

The Lifetime Learning credit is available for an unlimited time without restrictions as to course load. The credit can be used for tuition, student activity fees, and expenses for course-related books, supplies, and equipment if the fees and expenses are paid to the institution as a condition of enrollment. The credit equals 20 percent of tuition and fees up to $10,000, for a maximum yearly credit of $2,000.

Is there a College Tax Credit for 2021?

since the law will allow you to take the bigger number of tax expenses, versus a tax credit versus a deduction, one must calculate which education credit or education deduction gives you the largest refund.

Expenses & Deductions

Up to $4,000 in qualified education expenses can be deducted on your tax return if your modified adjusted gross income is not more than $65,000 ($130,000 if married). If your modified adjusted gross income is higher than $65,000 ($130,000 if married) but less than $80,000 ($160,000 if married), you can deduct up to $2,000 of qualified education expenses.

If you choose to deduct the education expenses, you can’t take the American Opportunity Credit or Lifetime Learning Credit on the same student’s education expenses. It depends on each taxpayer’s circumstances whether it is better to deduct the education expenses or take the American Opportunity Credit or Lifetime Learning Credit.

If you are claimed as a dependent on your parents’ tax return, you aren’t eligible to claim an education credit or deduction. Your parents, or whoever is claiming you as a dependent, are the ones who are eligible to claim the education credit or deduction for the tuition paid for you, whether or not you or your parents actually paid the tuition.

Tax Credits

The American Opportunity Credit is a credit of up to $2,500 per student for education expenses, including course materials expenses such as books, supplies, and equipment needed for a course of study. It can be claimed each year during the first four years of college and post-secondary education.

The amount of the American Opportunity Credit is 100 percent of the first $2,000 of qualified expenses and 25 percent of the next $2,000 paid. Up to 40 percent of the credit (up to $1,000) can be refundable. The American Opportunity Credit is almost always the best education credit to take if you qualify for it.

If you qualify for the American Opportunity Credit, you’ll almost always get a larger refund using that credit. If you don’t qualify for the American Opportunity Credit, the Lifetime Learning Credit is often the next best choice.

The Lifetime Learning Credit is a credit of up to $2,000 per student. The credit is 20 percent of any tuition or class fees paid up to $10,000 (for a total allowable credit of $2,000). Books, supplies, and equipment are only eligible expenses if they are required to be paid to the institution as a condition of enrollment or attendance.

The credit phases out for married taxpayers with adjusted gross income between $114,000 and $134,000. For single taxpayers and others not filing a joint tax return, the adjusted gross income phase-out is between $57,000 and $67,000. If your income is too high to take the Lifetime Learning Credit you may still be eligible to claim the education deduction.

These rules are tricky but generally speaking here goes your best tip:

While expenses are deductible, as per your tax bracket, credits, are x dollar for dollar deduction.

So in short, if you spent $5,000 on education and your in a 20 percent federal tax bracket, your educational deductions will total $1,000 while tax credits could equal up to $5,000.

Can I claim my College Student on my Taxes 2021?

If your child is a full-time college student, you can claim them as a dependent until they are 24. If they are working while in school, you must still provide more than half of their financial support to claim them.

Be aware that if your student meets any of the requirements below, they must file their own return. You may be able to claim them as a dependent even if they file their own return.  

If your student is single, they usually are required to file a federal return if any of the following applies:

• They have more than $1,100 of unearned income
• They earn more than $12,400

If your student is married, they usually are required to file a federal return if any of the following applies:

• They have more than $1,100 of unearned income
• They earn more than $12,400
• Their gross income was at least $5, and their spouse files a separate return and itemizes deductions

If you claim your college student as a dependent, you may be eligible for education tax credits like the American Opportunity Credit or the Lifetime Learning Credit. However, there are income thresholds for these benefits. If you exceed the income threshold, your child could still be eligible for the credit as long as you don’t claim them as your dependent.

If you have more than one child and they are only eligible for the Lifetime Learning Credit, it may be more beneficial if you don’t claim them as dependents.

If your student is required to file their own return, you can still claim them as a dependent, but you won’t be able to claim their income on your return. This should not affect what you can and can’t claim for college expenses. 

If your student made less than the standard deduction amount ($12,400 in 2020), they are not required to file their own tax return, and you do not have to claim their income as a parent. 

If your child’s only income is unearned income (interest, dividends, capital gain distributions) and is less than $10,500, you may be able to include that income on your return. Your child, in turn, would not have to file their own tax return.

Should College Student File their own Tax Return?

As a college student, you may be wondering whether you’re supposed to file a tax return once tax season rolls around. For some college students filing a tax return is a necessity; for others, it may be optional.

Whether you have to file taxes depends on several factors, including your gross income and whether your parents can claim you as a dependent.

Being a dependent, according to the IRS, means:

• You’re under age 19 at the end of the relative tax year or under age 24 at the end of the year and a student.
• You lived with your parents for more than half the year.
• You didn’t provide more than half of your own support for the year.

If you’re a dependent, you may still have to file a return depending on your income. For the 2019 tax year, you must file a return if:

• Your unearned income was more than $1,100.
• Your earned income was more than $12,200.
• Your gross income was greater than the larger of $1,100 or your earned income (up to $11,850) plus $350.

If you’re below those income thresholds, then technically you’re not required to file a tax return. But it could still be a good idea to file.

“The only way to receive a refund of taxes withheld is to file a tax return,” said Sheila Clark, director of The Income Tax School. So, if you worked a part-time or full-time job for the year and your W-2 forms show federal and state withholding, you’d need to file a return to claim a refund.

Also, keep in mind that while scholarships and grants are typically tax-free, there may be situations where you have to include them in taxable income. For example, if you used scholarship and grant funds for room and board, travel or optional equipment, or the money was received as payment for services you provided then you’d have to pay tax on those amounts.

How to File Taxes as a College Student

Filing taxes for the first time can be a little confusing but it starts with knowing which forms to file.

For most college students filing a tax return, that’s the standard Form 1040. You’ll use this form to report your income for the year and filing status, along with any deductions or tax credits you plan to claim.

Deductions permit you to decrease the taxable part of your income for the year. Credits offset any taxes you might owe to the IRS. If you have student loans or you pay education costs for yourself out of pocket, you may be eligible for the following deductions and credits:

• American Opportunity Credit
• Lifetime Learning Credit
• Tuition and Fees Deduction
• Student Loan Interest Deduction 

Whether you can claim any of these tax benefits hinges on your dependent status.

“College students who are dependents on their parents’ tax returns are not eligible to claim education credits,” Clark said.

Instead, parents can claim those deductions and credits for themselves, regardless of whether the student paid education expenses. Clark said college students filing a tax return should first have a conversation with their parents about dependency so they understand what they can claim and what they can’t.

Preparing to File Taxes as a Student

If you’re gearing up to file a tax return for the first time, think carefully about whether it makes sense to file yourself or hire a tax professional. Filing yourself can save money but if you have a more complicated return that includes multiple W-2 forms, income from a side job or deductions and credits beyond those related to education, you may benefit from a professional’s help the first time around.

Also, take the time to get organized. Round up your W-2 forms and forms showing interest paid on student loans if you have them. Getting these documents together before you sit down to file can make the process less stressful.

What Should you Know About College and Taxes?

Whether you’re a parent of a college student or paying your own way through school, here are 10 important things to know about college and taxes:

1. File even if you don’t have to

Technically, you only have to file a tax return if you reach a certain level of income. For example, if you were a dependent who earned more than $6,100 or an independent single filer who earned more than $10,150 in 2014, you’re required to file.

But even if you earned less than that, you might be due a refund if your employer withheld taxes from your check. Take 20 minutes to file, and you might discover you’re owed a refund.

2. Consider going alone

In most cases, it makes perfect sense for a traditionally aged college student to remain dependent for tax purposes. But there are certain situations in which it might be advantageous for a college student to file his or her own return.

For example, some higher education tax credits are only available to moderate income earners. If parents earn too much to qualify, the student might be better off filing independently.

3. Check out the Lifetime Learning Credit

The Lifetime Learning Credit is one of two tax credits available to cover college tuition. It will pay up to $2,000 per year per family to help cover qualified educational expenses.

The credit is good for every year in which a student is enrolled in college, graduate school or part-time learning.

4. Apply for the American Opportunity Tax Credit

The American Opportunity Tax Credit is even more generous, offering up to $2,500 per year per student, compared to the Lifetime Learning Credit cap of $2,000 per family.

One drawback: You can only claim it for four years per student, so no credit for graduate work.

5. The AOTC might pay you

One more excellent perk of the American Opportunity Tax Credit: The $2,500 credit is refundable, meaning that if you owe less than $2,500 in taxes, you’ll get a refund in the amount of the difference.

If you’re eligible for the Lifetime Learning Credit and the American Opportunity Credit for the same student in the same year, you can only choose one credit, but not both.

6. Deduct your student loan interest

Tens of millions of current college students and college graduates make student loan payments every month. Like mortgage interest, student loan interest is deductible (up to a limit of $2,500).

Even better, you can take the deduction even if you don’t itemize.

7. Get a refund for work-study

Unlike other types of college financial aid (like grants and scholarships), the money you earn from a work-study job is considered taxable income. But that’s not all bad.

The school will withhold income taxes from your paychecks. So when it’s time to file your taxes in April, you will likely get a refund.

8. Pay college expenses tax-free

There are two types of college savings accounts that every parent of a future college student should know about: 529 plans and Coverdell Education Savings Accounts.

In both cases, money in the accounts grow tax-free, but even better, you can withdraw money tax-free if the funds are used to pay education expenses.

9. In a crunch, tap the IRA

It’s generally not a good idea to make an early withdrawal from a retirement account. Not only are you taxed on the cash, but you’re also hit with a 10% penalty. There’s a loophole, though, for qualified education expenses.

If you withdraw money to pay for college costs, you’ll still owe taxes, but the 10% penalty is waived.

10. Geography matters

If you attend school in a different state than your tax home (aka your parents’ house), make sure you pay taxes on any earnings from both states. For example, if you have a summer job at home and a part-time job at school, different tax rates may apply.

You might even get lucky and work in a state without an income tax. Read up on both states’ tax laws and be prepared to file twice if necessary.

Who Qualifies for College Tax Credit?

You can claim the American Opportunity credit for qualified education expenses you pay for a dependent child as well as for expenses you pay for yourself or your spouse. If you have several students in your family, you can claim multiple credits based on the expenses of each student.

• For example, if you have three kids in college, you can claim up to $7,500 ($2,500 x 3) in American Opportunity credits.

The credit is not allowed for a student who has completed the first four years of post-secondary education as of the beginning of the year. So, if your child completed less than four years of college as of January 1, 2020, you can claim the credit on your 2020 return.

• You can only claim the credit for a year during which the student carries at least a half-time course load for a minimum of one semester beginning in that year.
• Additionally, the student must be enrolled in a program that leads to an associates or bachelors degree or some other recognized credential.

The Lifetime Learning tax credit can help cover undergraduate costs for a student who is not eligible for the American Opportunity credit because they’re carrying a limited course load or already have four years of college credit. Additionally, the Lifetime Learning credit can also help cover the cost of graduate school and of courses taken to maintain or improve job skills.

You can claim the Lifetime Learning credit for qualified education expenses you pay for a dependent child as well as for yourself or your spouse.

• The maximum amount of covered expenses is $10,000 no matter how many students you have.
• This translates into a $2,000 maximum credit ($10,000 X 20%).

Qualified expenses include tuition and mandatory enrollment fees at an eligible institution. Books and course materials can also count, but only if you are required to purchase them directly from the school. Other expenses, such as optional fees and room and board, do not qualify.

The rules for these credits can be tricky—especially when it comes to handling the refundable portion of the American Opportunity credit. TurboTax will show you which education credits will get you the best tax advantage, do all the calculations and complete all the forms for you. Just answer some simple questions and let TurboTax take care of the rest.

Can I Claim Tuition on my Taxes?

The deduction for tuition and fees is not available for the 2019 tax year. Those are the taxes you file in 2020. The loss of this deduction also highlights how useful a 529 college savings plan can be for saving money on college expenses.

You could’ve claimed deductions on your 2017 taxes worth up to $4,000. You qualified for the tax break if you covered the cost of qualified education expenses for a college student such as yourself, one of your dependents (as long as no one else can claim him on their taxes) or your spouse.

Qualified education expenses include tuition and other fees that students are obligated to pay in order to attend a particular institution. But you can’t deduct expenses that you paid for with a scholarship or another tax-free award.

You’re ineligible for the tuition and fees deduction if you and your spouse are filing separate tax returns or you were a nonresident alien for part of the tax year. You can’t claim the tax break if your income is higher than a certain threshold either.

Read Also: What are the Best Companies to Refinance Student Loans

If your modified adjusted gross income is above $80,000 (or above $160,000 for joint filers), you can’t qualify for the deduction. Note also that this is an above-the-line deduction. That means you don’t have to itemize deductions in order to take advantage of it.

The deduction for college tuition and fees is no longer available. However, you can still help yourself with college expenses through other deductions, such as the American Opportunity Tax Credit and the Lifetime Learning Credit. College graduates can also deduct the interest that they pay on student loans.

The interest deduction does not require you to itemize your taxes. (The tax filing service H&R Block actually provides the necessary forms for this deduction with their free filing option.) Beyond these credits, it’s very useful to have a 529 college savings plan to help decrease your out-of-pocket costs.