Tax Benefits for College Students & Families
What to Know Before You File
Paying for college is a major investment, and for many students and families, tax season offers an opportunity to recoup some of those costs. While taxes can feel complicated, understanding available education-related tax benefits can help reduce what you owe — or increase your refund.
Here’s a helpful overview of common college tax credits, deductions, and savings tools to be aware of as you prepare to file.
Education Tax Credits That May Lower Your Tax Bill
Education tax credits can be especially valuable because they reduce your tax bill dollar-for-dollar. Two of the most common credits available to college students and families are the American Opportunity Tax Credit and the Lifetime Learning Credit. While they sound similar, they apply to different situations.
American Opportunity Tax Credit (AOTC)
The American Opportunity Tax Credit allows eligible students or families to claim up to $2,500 per student, per year for qualified college expenses during the first four years of post-secondary education. Qualified expenses may include tuition, required fees, and course materials such as textbooks and supplies.
To be eligible for the AOTC, the student must:
- Be pursuing a degree or other recognized education credential
- Be enrolled at least half-time during the academic year
A portion of the credit may be refundable, meaning you could receive part of the credit even if you owe little or no federal income tax.
Lifetime Learning Credit (LLC)
The Lifetime Learning Credit allows students or parents to claim up to $2,000 per tax return for qualified education expenses. Unlike the AOTC, there is no limit on the number of years this credit can be claimed, making it a flexible option for graduate students or individuals taking courses to improve job skills.
Important things to know about the LLC:
- It can be used for undergraduate, graduate, or professional coursework
- The student does not need to be enrolled in a degree program
- The credit is nonrefundable and can reduce the amount of tax owed, but it will not result in a refund
Important note: You can’t claim both credits for the same student in the same tax year, so it’s important to choose the option that provides the greatest benefit.
Student Loan Interest Deduction
If you’re repaying student loans, you may be able to deduct interest paid on qualified student loans, even if you don’t itemize deductions. This can apply to loans taken out for yourself, your spouse, or a dependent, provided income limits are met.
This deduction can reduce your taxable income and may be especially helpful for recent graduates who are early in their repayment journey.
Who Can Claim Education Benefits?
Whether the student or parent claims an education-related tax benefit depends on several factors, including dependency status and who paid the education expenses. In many cases, parents who claim a student as a dependent may be eligible to claim certain credits on their tax return.
Because rules can vary, it’s important to review IRS guidance or consult a qualified tax professional.
Plan Ahead for Next Year
Education tax benefits aren’t just for tax time — planning throughout the year can help maximize savings. Keeping records of tuition payments, loan interest statements, and education-related expenses can make filing easier and help ensure you don’t miss potential benefits.
View the original article at studentchoice.org.