IRS Tax Tip 2017-31, March 16, 2017
Higher education costs paid in 2016 can mean tax savings when taxpayers file their tax returns. If taxpayers, their spouses or their dependents took post-high school coursework last year, they may be eligible for a tax credit or deduction.
Here are some facts from the IRS about tax benefits for higher education.
For 2016, there are two tax credits available to help taxpayers offset the costs of higher education. The American Opportunity Credit and the Lifetime Learning Credit may reduce the amount of income tax owed. Use Form 8863 to claim the education credits.
The American Opportunity Credit (AOC) is:
- Worth a maximum benefit up to $2,500 per eligible student.
- Only for the first four years at an eligible college or vocational school.
- For students pursuing a degree or other recognized education credential.
- For students enrolled at least half time for at least one academic period during 2016. Taxpayers can claim the AOC for a student enrolled in the first three months of 2017 as long as they paid qualified expenses in 2016.
- Partially refundable. If the credit brings the amount of tax owed to zero, 40 percent of any remaining amount of the credit (up to $1,000) will be refunded.
The Lifetime Learning Credit (LLC) is:
- Worth a maximum benefit up to $2,000 per tax return, per year, no matter how many students qualify.
- Available for all years of postsecondary education and for courses to acquire or improve job skills.
- Available for an unlimited number of tax years
The tuition and fees deduction can reduce the amount of income subject to tax. This deduction may be beneficial for taxpayers who don't qualify for the American Opportunity Credit or the Lifetime Learning Credit. Use Form 8917 to claim the tuition and fees deduction.
The Tuition and Fees Deduction is:
- Worth a maximum benefit up to $4,000,
- Claimed as an adjustment to income,
- Available even if a taxpayer doesn’t itemize deductions on Schedule A,
- Limited to tuition and certain related expenses required for enrollment or attendance at eligible postsecondary educational institutions.
- Beginning in 2016, to be eligible for an education benefit, a student is required to have Form 1098-T, Tuition Statement. They receive this form from the school they attended. There are exceptions for some students. See Publication 970 for more details.
- They may only claim qualifying expenses paid in 2016.
- They can’t claim either credit if someone else claims them as a dependent.
- They can’t claim either AOTC or LLC and the Tuition and Fees Deduction for the same student or for the same expense in the same year.
- Income limits could reduce the amount of credits or deductions they can claim.
- The Interactive Tax Assistant tool on IRS.gov can help check eligibility.
IRS Free File. Taxpayers can use IRS Free File to prepare and e-file their federal tax returns for free. File Form 8863, Education Credits, with your Form 1040. Free File is only available at IRS.gov/freefile.
The IRS reminds students using the Free Application for Federal Student Aid (FAFSA) that the IRS Data Retrieval Tool currently is unavailable. This does not limit an individual’s ability to apply for aid. Applicants can manually provide their tax return information. The IRS offers alternatives for the retrieval of the income information needed.
Additional IRS Resources:
- Tax Benefits for Education: Information Center
- Education Credits--AOTC and LLC
- American Opportunity Tax Credit
- Lifetime Learning Credit
- American Opportunity Tax Credit: Questions and Answers