Highlights for Tax Benefits for Higher Education

This chart highlights some differences among the benefits discussed in this publication. See the text for definitions and details. Do not rely on this chart alone. Caution: You generally cannot claim more than one benefit for the same education expense.

Reference: http://www.irs.gov/pub/irs-pdf/p970.pdf

Any nontaxable distribution is limited to the amount that does not exceed qualified education expenses. Table from Department of the Treasury Internal Revenue Service, Publication 970, Tax Benefits for Education. http://www.irs.gov/uac/Publication-970,-Tax-Benefits-for-Education-1

  What is your benefit? What is the annual limit? What expenses qualify besides tuition and required enrollment fees? What education qualifies? What are some of the other conditions that apply? In what income range do benefits phase out?
Scholarships, Fellowship Grants, Grants, and Tuition Reductions Amounts received may not be taxable None Course-related expenses such as fees, books, supplies, and equipment Undergraduate & graduate K-12 Must be in degree or vocational program. Payment of tuition and required fees must be allowed under the grant. No phaseout
American Opportunity Credit Credits can reduce the amount of tax you have to pay. 40% of the credit may be refundable (limited to $1,000 per student) $2,500 credit per student Course-related books, supplies, and equipment Undergraduate & graduate Can be claimed for only 4 tax year (which includes years Hope scholarship credit claimed) Must be enrolled at least half-time in degree program No felony drug conviction(s) Must not have completed first 4 years of postsecondary education before end of preceding tax year $80,000-$90,000 $160,000-$180,000 for joint returns
Lifetime Learning Credit Credits can reduce amount of tax you must pay $2,000 credit per tax return Amount paid for required books, etc. that must be paid to the education institution, are required fees Undergraduate & graduate Courses to acquire or improve job skills No other conditions $55,000-$80,000 $110,000-$130,000 for joint returns
Student Loan Interest Deduction Can deduct interest paid $2,500 deduction Books Supplies Equipment Room & board Transportation Other necessary expenses Undergraduate & graduate Must have been at least half-time student in degree program $65,000-$80,000 $130,000-$160,000 for joint returns
Tuition and Fees Deduction Can deduct expenses $4,000 deduction None Undergraduate & graduate Can't claim both deducation & education credit for same student in same year $60,000-$80,000 $130,000-$160,000 for joint returns
Coverdell ESA1 Earnings not taxed $2,000 contribution per beneficiary Books Supplies Equipment Expenses for special needs services Payments to QTP Higher education: Room & board if at least half-time student Elemen/sec (K-12 education): Tutoring Room & board Uniforms Transportation Computer access Supplmentary expenses Undergraduate and graduate K-12 Assets must be distributed at age 30 unless special needs beneficiary $95,000-$110,000 $190,000-$220,000 for joint returns
Qualified Tuition Program (QTP)1 Earnings not taxed None Books Supplies Equipment Room & board if at least half-time student Computer or peripheral equipment, computer software, or Internet access and related services Expenses for special needs services Undergraduate & graduate No other conditions No phaseout
Education Exception to Additional Tax on Early IRA Distributions1 No 10% additional tax on early distribution Amount of qualifed education expenses Books Supplies Equipment Room & board if at least half-time student Expenses for special needs services Undergraduate & graduate No other conditions No phaseout
Education Savings Bond Program1 Interest not taxed Amount of qualifed education expenses Payments to Coverdell ESA Payments to QTP Undergraduate & graduate Applies only to qualified series EE bonds issued after 1989 or series I bonds
Employer-Provided Educational Assistance1 Employer benefits not taxed $5,250 exclusion Books Supplies Equipment Undergraduate & graduate No other conditions No phaseout
Business Deducation for Work-Related Education Can deduct expenses Amount of qualfiying work-related education expenses Transportation Travel Other necessary expenses Required by employer or law to keep present job, salary, status Maintain or improve job skills Can't be to meet minimum educational requirements of present trade/business Can't qualify your for new trade/business No phaseout
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Any nontaxable distribution is limited to the amount that doesn't exceed qualified education expenses.