Key Terms

Education Tax Benefits

Federal education tax credits are available to qualifying individuals and can help make education more affordable. The following benefits are available to individual taxpayers for education expenses:

Education Tax Credits

You may qualify for two key education credits that can help off-set the cost of post-secondary education for you, your spouse or a dependent: Hope Scholarship Credit/American Opportunity Tax Credit and the Lifetime Learning Credit. Please note that for tax years 2009 – 2017, the Hope Scholarship Credit is renamed the American Opportunity Tax Credit and the amount of the credit has been increased.

While you may qualify for both credits, you cannot claim both the American Opportunity Tax Credit and Lifetime Learning credits for the same student in the same year. Both credit amounts are determined based on your gross income and your filing status. Furthermore, you cannot claim either credit if you are married filing a separate return or claimed as a dependent on someone else’s return.

Hope Scholarship Credit/American Opportunity Tax Credit
For tax years 2009 – 2017, eligible students can claim up to $2,500 of tuition and related expenses through the American Opportunity Tax Credit. The credit applies for the first four years of post-secondary education, such as college or vocational school, for qualifying students. 

Lifetime Learning Credit
The Lifetime Learning Credit equals 20 percent of the first $10,000 of tuition and related expenses paid during the year, for a maximum credit of $2,000 per tax return. The credit applies regardless of the number of years the student is in the program.

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Tuition and Fees Deduction

You may be eligible to deduct up to $4,000 of the tuition and fees that you pay by December 31, 2013, for the enrollment of yourself, your spouse or dependent, at an eligible educational institution. You do not have to itemize to claim this deduction and the deduction is reduced or eliminated if your modified adjusted gross income exceeds certain limits, based on your filing status.

You cannot claim the tuition and fees deduction if you are married and do not file a joint return, if someone claims you as a dependent, or if you claim the Hope Scholarship Credit (or increased American Opportunity Tax Credit) or Lifetime Learning Credit. In addition, you cannot deduct expenses paid with a tax-free education benefit, such as a scholarship or employer-provided education assistance.

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Education as a Business Expense

You may be able to deduct educational expenses paid during the year as business expenses if they are for education that:

  • Maintains or improves skills required in your present job; or
  • Serves a business purpose of your employer and is required by your employer or by law, to keep your present salary, status or job.

Your expenses are not deductible if the education:

  • Is required to meet the minimum educational requirements of your job; or
  • Is part of a program of study qualifying you in a new trade or business.

Employee business expenses are deducted as miscellaneous itemized deductions on Form 1040 Schedule A. Self-employed individuals deduct educational expenses related to their business on Schedules C, C-EZ or F on Form 1040.

Deductible expenses can include tuition, fees, books, supplies, and certain transportation costs, and can be claimed in combination with an education credit or the tuition and fees deduction. However, an expense that is used to calculate an education credit or claimed under the tuition and fees provision, cannot be deducted as a business expense. You cannot deduct an expense paid with a tax-free education benefit, such as a scholarship or employer-provided education assistance.

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Coverdell Education Savings Accounts (ESAs) and Qualified Tuition Programs

Some education benefits provided by your employer may be part of an educational assistance program and do not need to be included as income. You may also contribute money to an account established for paying a student’s qualified education expenses at an eligible educational institution. Coverdell ESAs and Qualified Tuition Programs (QTPs), also known as 529 plans, allow you to grow the money in the accounts tax-free and if used to pay qualified education expenses, that money is also tax-free.

Additionally, the Hope and lifetime learning credits can be claimed in the same year the beneficiary takes a tax-free distribution from a Coverdell ESA, as long as the same expenses are not used for both benefits.

Contributions to ESAs:

  1. Are limited to $2,000 per year per student;
  2. Must generally be made before the student reaches age 18; and
  3. Are only available if your modified adjusted gross income does not exceed certain limits, based on your filing status. ESAs are available to pay tuition or related expenses for primary, secondary and post-secondary schools.

The requirements for Qualified Tuition Programs (QTPs) are generally less restrictive than ESAs but qualifying expenses are generally limited to tuition or related expenses paid in connection with enrollment at a college or vocational school. 

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