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Publication 970 - Introductory Material


Future Developments

For the latest information about developments related to Pub. 970, such as legislation enacted after it was published, go to www.irs.gov/pub970.

What's New for 2015

Losses on QTP investments. Aggregation rules discussed in chapter 8 (and referred to in chapter 7) require a loss from one QTP account to reduce distributed earnings from another QTP account when distributions from both occur during the same year. For distributions after 2014, these distribution aggregation requirements have been eliminated. Because this change was retroactive, additional guidance may be provided. For the latest information, go to www.irs.gov/pub970.

Achieving a Better Life Experience (ABLE) account. This is a new type of savings account for individuals with disabilities and their families. For 2015, you can contribute up to $14,000. Distributions are tax free if used to pay the beneficiary's qualified disability expenses, which may include education expenses. For more information, see Pub. 907, Tax Highlights for Persons with Disabilities.

American opportunity credit. If you didn't have an SSN (or ITIN) by the due date of your 2015 return (including extensions), you can't claim the American opportunity credit on either your original or an amended 2015 return, even if you later get an SSN (or ITIN). Also, you can't claim this credit on your original or an amended 2015 return for a student who didn't have an SSN, ATIN, or ITIN by the due date of your return (including extensions), even if the student later gets one of those numbers.

Lifetime learning credit. For 2015, the amount of your lifetime learning credit is gradually reduced (phased out) if your modified adjusted gross income (MAGI) is between $55,000 and $65,000 ($110,000 and $130,000 if you file a joint return). You can't claim a credit if your MAGI is $65,000 or more ($130,000 or more if you file a joint return). For more information, see chapter 3 . The American opportunity credit MAGI limits are unchanged (see chapter 2 ).

Student loan interest deduction. . For 2015, the amount of your student loan interest deduction is gradually reduced (phased out) if your MAGI is between $65,000 and $80,000 ($130,000 and $160,000 if you file a joint return). You can't claim the deduction if your MAGI is $80,000 or more ($160,000 if you file a joint return). See chapter 4 for more information.

Coverdell ESA rollovers. You can make only one rollover from a Coverdell ESA to another Coverdell ESA in any 12-month period regardless of the number of Coverdell ESAs you own. However, you can make unlimited transfers from one Coverdell ESA trustee directly to another Coverdell ESA trustee because such transfers aren’t considered to be distributions or rollovers. The limit of one rollover during any 12-month period doesn’t apply to the rollover of a military death gratuity or Servicemembers’ Group Life Insurance (SGLI) payment. See chapter 7 for more information.

Coverdell ESA qualified higher education expenses. After 2014, qualified higher education expenses include expenses paid or incurred for the purchase of computer or peripheral equipment, computer software, or Internet access and related services to be used primarily by the beneficiary while enrolled at an eligible postsecondary school. See chapter 7 for more information.

QTP qualified education expenses. After 2014, qualified education expenses include expenses paid or incurred for the purchase of computer or peripheral equipment, computer software, or Internet access and related services to be used primarily by the beneficiary while enrolled at an eligible educational institution. See chapter 8 for more information.

Recontribution of refunded education expenses to a QTP. If a student receives a refund after December 31, 2014, of qualified education expenses that were treated as paid by a qualified tuition program (QTP) distribution, the student can recontribute these amounts into a QTP for which they are the beneficiary within 60 days after the date of the refund to avoid the need to figure the taxable part of the QTP distribution. For refunds received after December 31, 2014, and before December 18, 2015, a transition rule allows the student to recontribute these amounts by February 16, 2016. See chapter 8 for more information.

Business deduction for work-related education. For 2015, if you drive your car to and from school and qualify to deduct transportation expenses, the amount you can deduct for miles driven from January 1, 2015, through December 31, 2015, is 57.5 cents a mile. See chapter 12 for more information.

What's New for 2016

Form 1098-T requirement. For 2016, the American opportunity credit, lifetime learning credit, and tuition and fees deduction will not be allowed unless the student receives a Form 1098-T from an eligible educational institution.

Reminders

Form 1098-T, Tuition Statement. When figuring an education credit or tuition and fees deduction, use only the amounts you paid and are deemed to have paid during the tax year for qualified education expenses. In most cases, the student should receive Form 1098-T from the eligible educational institution by February 1, 2016 (January 31 is a Sunday). An institution may choose to report either payments received during calendar year 2015 (box 1), or amounts billed during the calendar year 2015 (box 2), for qualified education expenses. However, the amounts on Form 1098-T, boxes 1 and 2, might be different than the amount you actually paid and are deemed to have paid. In addition, the Form 1098-T should give you other information for that institution, such as adjustments made for prior years, the amount of scholarships or grants, reimbursements, or refunds, and whether the student was enrolled at least half-time or was a graduate student. The eligible educational institution may ask for a completed Form W-9S, Request for Student's or Borrower's Taxpayer Identification Number and Certification, or similar statement to obtain the student's name, address, and taxpayer identification number.

Coordination with Pell grants and other scholarships or fellowship grants. It may benefit you to choose to include otherwise tax-free scholarships or fellowship grants in income. This may increase your education credit and lower your total tax or increase your refund. See Coordination with Pell grants and other scholarships or fellowship grants throughout this publication.

Hope scholarship credit. For 2015, the Hope scholarship credit isn't available. However, you may be able to claim an American opportunity or lifetime learning credit. See chapter 2 and chapter 3 for more information.

Estimated tax payments. If you have taxable income from any of your education benefits and the payer doesn't withhold enough income tax, you may need to make estimated tax payments. For more information, see Pub. 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, fellowship grants, and tuition reductions.

  Two tax credits for which you may be eligible are explained in chapter 2 and chapter 3 . These benefits, which reduce the amount of income tax you may have to pay, are:
  • The American opportunity credit, and

  • The lifetime learning credit.

   Ten other types of benefits are explained in chapters 4 through 12. These benefits, which reduce the amount of income tax you may have to pay, are:
  • Deduct student loan interest;

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

  • Deduct tuition and fees for education;

  • Receive tax-free student loan repayment assistance;

  • 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

  • Claim a business deduction for work-related education.

Note.

You generally can't claim more than one of the benefits described in the list above for the same qualifying education expense.

Comparison table.   Some of the features of these benefits are highlighted in Appendix B , later, in 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. For more information, see Pub. 505, Tax Withholding and Estimated Tax.

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 aren't 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 isn't 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 send us comments from www.irs.gov/formspubs. Click on “More Information” and then on “Give us feedback.

  Or you can write to:

Internal Revenue Service 
Tax Forms and Publications 
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.

  Although we can't respond individually to each comment received, 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. Otherwise, you can go to www.irs.gov/orderforms to order current and prior-year forms and instructions. Your order should arrive within 10 business days.

Tax questions.   If you have a tax question not answered by this publication, check IRS.gov and How To Get Tax Help at the end of this publication.

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-A Contributions to Individual Retirement Arrangements (IRAs)

  • 590-B Distributions from Individual Retirement Arrangements (IRAs)

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 and Other Tax-Favored Accounts

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

  • 8863 Education Credits

  • 8917 Tuition and Fees Deduction

  • Schedule A (Form 1040) Itemized Deductions

 
See chapter 13 for information about getting these publications and forms.


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