Education Tax Credits & Deductions
Information on financing your online education
Education Tax Credits
Tax Credits are credits that can be applied to taxes you owe. They can lower your tax bill dollar for dollar, whereas a deduction for education expenses can lower your taxable income.
To find out what works best for you, work with your financial aid counselor and tax professional.
There are several tax credits available to help offset the costs of higher education by reducing the amount of income tax you owe. They are the American Opportunity Credit, the Hope credit and the Lifetime Learning Credit, also referred to as education credits. Some credits require you to be at least a half-time student, others apply for any qualified coursework. Please contact the Financial Aid offices at the campuses for more information.
The American Opportunity Tax Credit is a refundable tax credit for undergraduate college education expenses. This credit provides up to $2,500 in tax credits on the first $4,000 of qualifying educational expenses. Forty percent of the credit (up to $1,000 maximum) is refundable. The tax credit is scheduled to have a limited life span: it will be available only for the years 2009 and 2010, unless Congress decides to extend the credit to other years.
For more information on the American Opportunity Credit, please visit: http://www.irs.gov
The Lifetime Learning Credit is a tax credit for any person who takes college classes. It provides a tax credit of up to $2,000 on the first $10,000 of college tuition and fees. You can claim the Lifetime Learning Credit on your tax return if you, your spouse, or your dependents are enrolled at an eligible educational institution and you were responsible for paying college expenses. Unlike the Hope Credit, you need not be enrolled at least half-time. Even if you took only one class, you may take advantage of the Lifetime Learning Credit.
For the tax year, you may be able to claim a lifetime learning credit of up to $2,000 ($4,000 for students in Midwestern disaster areas) for qualified education expenses paid for all students enrolled in eligible educational institutions. There is no limit on the number of years the lifetime learning credit can be claimed for each student. The lifetime learning credit you are allowed may be limited by the amount of your income and the amount of your tax. You may be able to take a tuition and fees deduction for your education expenses, instead of a lifetime learning credit. You can choose the one that will give you the lower tax.
- Up to $2,000 credit ($4,000 if a student in a Midwestern disaster area) per return
- Available for all years of postsecondary education and for courses to acquire or improve job skills
- Available for an unlimited number of years
- Student does not need to be pursuing a degree or other recognized education credential
- Available for one or more courses
- Felony drug conviction rule does not apply
How does the Lifetime Learning Education Tax credit work?
A tax credit reduces the amount of income tax you may have to pay. Unlike a deduction, which reduces the amount of income subject to tax, a credit directly reduces the tax itself. The lifetime learning credit is a nonrefundable credit. This means that it can reduce your tax to zero, but if the credit is more than your tax, the excess will not be refunded to you.
For more information on the Lifetime Learning Tax Credit, please visit: http://www.irs.gov
The Hope Credit is a tax credit for college students in their first two years of college. It provides a tax credit of up to $1,800 on the first $2,400 of college tuition and fees. You can claim the Hope Credit on your tax return if you, your spouse, or your dependent is a first-year or second-year college student, enrolled at least half-time at an eligible education institution, and you were responsible for paying college expenses.
- Up to $1,800 credit ($3,600 if a student in a Midwestern disaster area) per eligible student
- Available ONLY until the first 2 years of post-secondary education are completed
- Available ONLY for 2 years per eligible student
- Student must be pursuing an undergraduate degree or other recognized education credential
- Student must be enrolled at least half time for at least one academic period beginning during the year
For more details on the HOPE Education Credit, please visit: http://www.irs.gov
Tax Deductions for Educational Expenses
Tax deductions may be used for qualified educational expenses. Tax deductions reduce the amount of your taxable income, and can help reduce your income tax bill. Two common deductions for education-related expenses, the Tuition & Fees Deduction, and the Student Loan Interest, are described here. For more information and details on how to use these deductions, please contact a tax professional or consult the IRS resources on education tax deductions listed below.
Tuition & Fees Deduction
You may be able to deduct qualified education expenses paid during the year for yourself, your spouse, or your dependent. You cannot claim this deduction if your filing status is married filing separately or if another person can claim an exemption for you as a dependent on his or her tax return. The qualified expenses must be for higher education.
The tuition and fees deduction can reduce the amount of your income subject to tax by up to $4,000. This deduction is taken as an adjustment to income. This means you can claim this deduction even if you do not itemize deductions on Schedule A (Form 1040). This deduction may be beneficial to you if you cannot take either the Hope or lifetime learning credit because your income is too high.
For more details on the Tuition & Fees Deduction, please visit: http://www.irs.gov
Student Loan Interest Deduction
Generally, personal interest that you pay, other than certain mortgage interest, is not deductible on your tax return. However, if your modified adjusted gross income (MAGI) is less than $70,000 ($145,000 if filing a joint return), there is a special deduction allowed for paying interest on a student loan (also known as an education loan) used for higher education. For most taxpayers, MAGI is the adjusted gross income as figured on their federal income tax return before subtracting any deduction for student loan interest. This deduction can reduce the amount of your income subject to tax by up to $2,500 in 2008.
For more details on the Student Loan Interest Deduction, please visit: http://www.irs.gov
For more information on scholarships and grants, please visit: http://studentaid.ed.gov
For more information on SUNY Financial Aid programs and state and federal programs for financial aid at SUNY, please contact the Financial Aid Office at the campus offering your course or program online.