The US tax code provides several incentives for higher education expenses. Incentives are provided in the form of credits or deductions. Credits reduce the amount of income tax you must pay. Deductions reduce the amount of income upon which you are taxed. You may not claim both a deduction and a tax credit for the same expense payments.
American Opportunity & Lifetime Learning Credits
The American Opportunity Credit is a credit of up to $2,500 for adjusted qualified education expenses paid for each student that qualifies. This credit is available only if the student has not yet completed the first four years of postsecondary education and is enrolled at least half-time in a degree-seeking program. The American Opportunity Credit is available a maximum of 4 years for any eligible student, but multiple credits can be used in a single year if more than one student qualifies.
The Lifetime Learning Credit is a credit of up to $2,000 for qualified education expenses paid for all eligible students; in other words, only one credit is allowed per tax return, even if there are multiple students claimed on the return. There is no limit on the number of years the Lifetime Learning Credit may be claimed.
Allowable credits may be limited by the amount of your income. Note that you must have a Form 1098-T from an eligible educational institution to claim education credits. See additional information below regarding the Form 1098-T. To determine whether you qualify for an education credit, refer to the latest IRS Publication 970, Tax Benefits for Education.
Student Loan Interest & Tuition and Fees Deductions
If you paid interest on student loans during the calendar year, you may be able to claim up to a $2,500 deduction. The amount you paid will be reported to you and the IRS on Form 1098-E (Student Loan Interest Statement). If you have university institutional and/or Perkins loans and did not receive the form, please contact Affiliated Computer Systems at 800-826-4470 or www.acs-education.com. Questions on all Form 1098-E tax forms should be directed to the applicable loan servicer.
Interest paid on a PEP loan for your son or daughter will be handled the same way as above.
If you paid qualified education expenses for yourself, your spouse, or your dependents, you may be able to take up to a $4,000 deduction for those expenses. The amount you paid will be reported to you and the IRS on Form 1098-T. Note that you must have a Form 1098-T from an eligible educational institution to claim a tuition and fees deduction. See additional information below regarding the Form 1098-T.
Allowable deductions may be limited by the amount of your income.
Information on the 1098-T is provided so that the student and their tax preparer can decide the best course of action for any possible tax credits.
In previous years, your 1098-T included a figure in Box 2 that represented the qualified tuition and related expenses (QTRE) we billed to your student account for the calendar (tax) year. Due to a change to institutional reporting requirements under federal law, Box 2 reporting is no longer available. Beginning with tax year 2018, we will report in Box 1 the amount of QTRE you paid during the year. As a result of the change in the reporting requirement, Box 3 will be checked.
Depending on your income (or your family’s income, if you are a dependent), whether you were considered full or half-time enrolled, and the amount of your qualified educational expenses for the year, you may be eligible for a federal education tax credit. (You can find detailed information about claiming education tax credits in IRS Publication 970, page 9.)
The dollar amounts reported on your Form 1098-T may assist you in completing IRS Form 8863 – the form used for calculating the education tax credits that a taxpayer may claim as part of your tax return.
Washington University is unable to provide you with individual tax advice. If you have questions, you should seek the counsel of an informed tax preparer or adviser.