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Publication 970 - Introductory Material

Table of Contents

What's New

American opportunity credit. This new education tax credit (a modification of the Hope credit) is available for 2009 and 2010. The maximum credit per student is $2,500 (100% of the first $2,000 and 25% of the next $2,000 of qualified education expenses). The credit is available for the first 4 years of postsecondary education, and 40% of the credit is refundable for most taxpayers. The threshold at which this credit is reduced is higher than that for the Hope and lifetime learning credits. For 2009, the amount of your credit is gradually reduced (phased out) if your modified adjusted gross income (MAGI) is between $80,000 and $90,000 ($160,000 and $180,000 if you file a joint return). You cannot claim a credit if your MAGI is $90,000 or more ($180,000 or more if you file a joint return). For more information, see chapter 2.

Eligibility for the Hope credit. For 2009, you can claim a Hope credit only if at least one eligible student is attending an eligible educational institution in a Midwestern disaster area and you do not claim an American opportunity credit for any other student in the same year.

Increased income thresholds for 2009. 
Hope and lifetime learning credits. For 2009, the amount of your Hope or lifetime learning credit is gradually reduced (phased out) if your modified adjusted gross income (MAGI) is between $50,000 and $60,000 ($100,000 and $120,000 if you file a joint return). You cannot claim a credit if your MAGI is $60,000 or more ($120,000 or more if you file a joint return). This is an increase from the 2008 limits of $48,000 and $58,000 ($96,000 and $116,000 if filing a joint return). For more information, see chapters 3 and 4. Student loan interest deduction. The amount of your student loan interest deduction for 2009 is gradually reduced (phased out) if your modified adjusted gross income (MAGI) is between $60,000 and $75,000 ($120,000 and $150,000 if you file a joint return). You cannot take a deduction if your MAGI is $75,000 or more ($150,000 or more if you file a joint return). This is an increase from the 2008 limits of $55,000 and $70,000 ($115,000 and $145,000 if filing a joint return). See chapter 5 for more information. Qualified tuition program (529 plan). For 2009 and 2010, qualified education expenses include expenses paid or incurred for the purchase of computer technology, equipment, and Internet access to be used by the beneficiary and his or her family while enrolled at an eligible educational institution. For more information, see Qualified education expenses in chapter 9. Education savings bond program. For 2009, the amount of your interest exclusion will be gradually reduced (phased out) if your filing status is married filing jointly or qualifying widow(er) and your modified adjusted gross income (MAGI) is between $104,900 and $134,900. You cannot take the deduction if your MAGI is $134,900 or more. For 2008, the limits that applied to you were $100,650 and $130,650. For all other filing statuses, your interest exclusion for 2009 is phased out if your MAGI is between $69,950 and $84,950. You cannot take the deduction if your MAGI is $84,950 or more. For 2008, the limits that applied to you were $67,100 and $82,100. For more information, see chapter 11.

Business deduction for work-related education. For 2009:

  • If you drive your car to and from school and qualify to deduct transportation expenses, the amount you can deduct for miles driven during 2009 is 55 cents per mile. This is down from 58½ cents per mile at the end of 2008. See chapter 13 for more information.

  • If your adjusted gross income for 2009 is more than $166,800 ($83,400 if you are married filing separately), your itemized deductions may be limited. See chapter 13 and the instructions for line 29 of Schedule A (Form 1040).

Reminders

Students in Midwestern disaster areas. The following rules apply only to students attending an eligible educational institution in the Midwestern disaster areas in the states of Arkansas, Illinois, Indiana, Iowa, Missouri, Nebraska, and Wisconsin. See Table 4-2 at the end of chapter 4 for a list of counties.

  • Hope credit increased. The Hope credit for students in Midwestern disaster areas is 100% of the first $2,400 of qualified education expenses and 50% of the next $2,400 of qualified education expenses for a maximum credit of $3,600 per student.

  • Lifetime learning credit increased. The lifetime learning credit rate for students in Midwestern disaster areas is 40% of qualified expenses paid, with a maximum credit of $4,000 allowed on your return.

  • Definition of qualified expenses expanded. The definition of qualified education expenses for the education credits and the tuition and fees deduction is expanded for students in Midwestern disaster areas.

See chapters 3, 4, and 7 for more information.

Contribution of military death gratuity to Coverdell ESA. Families of soldiers killed in the line of duty may contribute, subject to certain limitations, up to 100 percent of survivor benefits to education savings accounts. Under certain conditions this applies retroactively to deaths from injuries occurring on or after October 7, 2001. For more information, see chapter 8.

Estimated tax payments. If you have taxable income from any of your education benefits and the payer does not withhold enough income tax, you may need to make estimated tax payments. For more information, see Publication 505, Tax Withholding and Estimated Tax.

Photographs of missing children. The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.

Introduction

This publication explains tax benefits that may be available to you if you are saving for or paying education costs for yourself or, in many cases, another student who is a member of your immediate family. Most benefits apply only to higher education.

What is in this publication.   Chapter 1 explains the tax treatment of various types of educational assistance, including scholarships, fellowships, and tuition reductions.

  Three tax credits for which you may be eligible are explained in chapters 2, 3, and 4. These benefits, which reduce the amount of income tax you may have to pay, are:

  • The American opportunity credit,

  • The Hope credit, and

  • The lifetime learning credit.

  Ten other types of benefits are explained in chapters 5 through 13. With these benefits, you may be able to:

  • Deduct student loan interest;

  • Receive tax-free treatment of a canceled student loan;

  • Receive tax-free student loan repayment assistance;

  • Deduct tuition and fees for education;

  • Establish and contribute to a Coverdell education savings account (ESA), which features tax-free earnings;

  • Participate in a qualified tuition program (QTP), which features tax-free earnings;

  • Take early distributions from any type of individual retirement arrangement (IRA) for education costs without paying the 10% additional tax on early distributions;

  • Cash in savings bonds for education costs without having to pay tax on the interest;

  • Receive tax-free educational benefits from your employer; and

  • Take a business deduction for work-related education.

Note.

You generally cannot claim more than one of the benefits described in the lists above for the same qualifying education expense.

Comparison table.   Some of the features of these benefits are highlighted in Appendix B , beginning on page 91 of this publication. This general comparison table may guide you in determining which benefits you may be eligible for and which chapters you may want to read.

When you figure your taxes, you may want to compare these tax benefits so you can choose the method(s) that gives you the lowest tax liability. If you qualify, you may find that a combination of credit(s) and deduction(s) gives you the lowest tax.

Analyzing your tax withholding.   After you estimate your education tax benefits for the year, you may be able to reduce the amount of your federal income tax withholding. Also, you may want to recheck your withholding during the year if your personal or financial situation changes. See Publication 919, How Do I Adjust My Tax Withholding, for more information.

Glossary.   In this publication, wherever appropriate, we have tried to use the same or similar terminology when referring to the basic components of each education benefit. Some of the terms used are:

  • Qualified education expenses,

  • Eligible educational institution, and

  • Modified adjusted gross income.

  Even though the same term, such as qualified education expenses, is used to label a basic component of many of the education benefits, the same expenses are not necessarily allowed for each benefit. For example, the cost of room and board is a qualified education expense for the qualified tuition program, but not for the education savings bond program.

  Many of the terms used in the publication are defined in the glossary near the end of the publication. The glossary is not intended to be a substitute for reading the chapter on a particular education benefit, but it will give you an overview of how certain terms are used in discussing the different benefits.

Comments and suggestions.   We welcome your comments about this publication and your suggestions for future editions.

  You can write to us at the following address:


Internal Revenue Service
Individual Forms and Publications Branch
SE:W:CAR:MP:T:I
1111 Constitution Ave. NW, IR-6526
Washington, DC 20224

  We respond to many letters by telephone. Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence.

  You can email us at *taxforms@irs.gov. (The asterisk must be included in the address.) Please put “Publications Comment” on the subject line. Although we cannot respond individually to each email, we do appreciate your feedback and will consider your comments as we revise our tax products.

Ordering forms and publications.   Visit www.irs.gov/formspubs to download forms and publications, call 1-800-829-3676, or write to the address below and receive a response within 10 days after your request is received.


Internal Revenue Service
1201 N. Mitsubishi Motorway
Bloomington, IL 61705-6613

Tax questions.   If you have a tax question, check the information available on www.irs.gov or call 1-800-829-1040. We cannot answer tax questions sent to either of the above addresses.

Useful Items - You may want to see:

Publication

  • 463 Travel, Entertainment, Gift, and Car Expenses

  • 525 Taxable and Nontaxable Income

  • 550 Investment Income and Expenses

  • 590 Individual Retirement Arrangements (IRAs)

  • 4492-B Information for Affected Taxpayers in the Midwestern Disaster Areas

Form (and Instructions)

  • 1040 U.S. Individual Income Tax Return

  • 1040A U.S. Individual Income Tax Return

  • 1040EZ Income Tax Return for Single and Joint Filers With No Dependents

  • 1040NR U.S. Nonresident Alien Income Tax Return

  • 1040NR-EZ U.S. Income Tax Return for Certain Nonresident Aliens With No Dependents

  • 2106 Employee Business Expenses

  • 2106-EZ Unreimbursed Employee Business Expenses

  • 5329 Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts

  • 8815 Exclusion of Interest From Series EE and I U.S. Savings Bonds Issued After 1989

  • 8863 Education Credits (American Opportunity, Hope, and Lifetime Learning Credits)

  • 8917 Tuition and Fees Deduction

  • Schedule A (Form 1040) Itemized Deductions


See chapter 14, How To Get Tax Help, for information about getting these publications and forms.

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