If you are currently paying for your education, then good news you are entitled to some awesome tax deductions and credits that will help you Save Money and Reduce Taxes! The following list is a condensed summary of some of the Education Related Tax Benefits followed by Excerpts from IRS.gov

• Student Loan Interest Deduction
• Student Loan Forgiveness
• Education Tax Credits
• Qualified Education Savings Tax Free Distributions
• Employer Tax Free Education Assistance
• Educator Expense Adjustment

Student Loan Interest

Student loan interest is interest you paid during the year on a qualified student loan. It includes both required and voluntarily pre-paid interest payments. You may deduct the lesser of $2,500 or the amount of interest you actually paid during the year. The deduction is gradually reduced and eventually eliminated by phaseout when your modified adjusted gross income (MAGI) amount reaches the annual limit for your filing status.

You claim this deduction as an adjustment to income, so you don’t need to itemize your deductions.

You can claim the deduction if all of the following apply:

• You paid interest on a qualified student loan in tax year 2022;
• You’re legally obligated to pay interest on a qualified student loan;
• Your filing status isn’t married filing separately;
• Your MAGI is less than a specified amount which is set annually; and
• Neither you nor your spouse, if filing jointly, can be claimed as dependents on someone else’s return.

A qualified student loan is a loan you took out solely to pay qualified higher education expenses that were:

• For you, your spouse, or a person who was your dependent when you took out the loan;
• For education provided during an academic period for an eligible student; and
• Paid or incurred within a reasonable period of time before or after you took out the loan.

See Publication 970, Tax Benefits for Education, the Instructions for Form 1040 (and Form 1040-SR) or the Instructions for Form 1040-NR to determine if your expenses qualify.

If you file a Form 2555, Foreign Earned Income, Form 4563, Exclusion of Income for Bona Fide Residents of American Samoa, or if you exclude income from sources inside Puerto Rico, refer to “Worksheet 4-1, Student Loan Interest Deduction Worksheet” in Publication 970 instead of the worksheet in the Instructions for Form 1040 (and Form 1040-SR).

If you paid $600 or more of interest on a qualified student loan during the year, you should receive a Form 1098-E, Student Loan Interest Statement from the entity to which you paid the student loan interest.

For more information about the student loan interest deduction and how your MAGI affects the deduction amount, refer to Publication 970PDF and Can I Claim a Deduction for Student Loan Interest?

Student Loan Forgiveness

On page 21 of the 2021 Pub. 525PDF, several exceptions are listed for the inclusion of canceled student loan debt in income. Please note the following additional information for certain student loans.

The American Rescue Plan Act of 2021 modified the treatment of student loan forgiveness for discharges in 2021 through 2025. Generally, if you are responsible for making loan payments, and the loan is canceled or repaid by someone else, you must include the amount that was canceled or paid on your behalf in your gross income for tax purposes. However, in certain circumstances, you may be able to exclude this amount from gross income if the loan was one of the following.

• A loan for postsecondary educational expenses.
• A private education loan.
• A loan from an educational organization described in section 170(b)(1)(A)(ii).
• A loan from an organization exempt from tax under section 501(a) to refinance a student loan.

See Pubs. 4681PDF and 970PDF for further details.

Education Tax Credits

n education credit helps with the cost of higher education by reducing the amount of tax owed on your tax return. If the credit reduces your tax to less than zero, you may get a refund. There are two education credits available: the American opportunity tax credit (AOTC) and the lifetime learning credit (LLC).

Don’t overlook these important credits.

Who can claim an education credit?

There are additional rules for each credit, but you must meet all three of the following for both:

1. You, your dependent or a third party pays qualified education expenses for higher education.
2. An eligible student must be enrolled at an eligible educational institution.
3. The eligible student is yourself, your spouse or a dependent you list on your tax return.

Who cannot claim an education credit?

You cannot claim an education credit when:

• Someone else, such as your parents, list you as a dependent on their tax return
• Your filing status is married filing separately
• You already claimed or deducted another higher education benefit using the same student or same expenses (see Education Benefits: No Double Benefits Allowed for more information)
• You (or your spouse) were a non-resident alien for any part of the year and did not choose to be treated as a resident alien for tax purposes (find more information in Publication 519, U.S. Tax Guide for Aliens)

Compare the education credits

The education credits have some similarities but some very important differences. Find out which credit you qualify for, see our handy chart to compare the education credits.

• Find out more about the American opportunity tax credit here
• Find out more about the lifetime learning credit here

Use our interactive app

Our interactive app, “Am I Eligible to Claim an Education Credit?” helps you determine if you are eligible for education credits and deductions.

What should I do if I receive a letter from the IRS or I’m audited?

Taxpayer rights

You will benefit from knowing your rights as a taxpayer and being familiar with the IRS’s obligations to protect them. The goal of the Taxpayer Rights Corner is to inform you of your rights during every step of your interaction with the IRS.

Did you receive a letter?

If you receive a letter or are audited by the IRS, it may be because the IRS did not receive a Form 1098-T, Tuition StatementPDF, verifying the student’s enrollment or we need additional information to support the amounts of qualified expenses you reported on Form 8863PDF. Review your Form 1098-T PDF to make sure the student’s name and social security number are correct. If they do not match, contact the school to correct the information for future 1098-T reporting. If the student should have and did not receive the Form 1098-TPDF, contact the school for a copy. Note: There are a few exceptions in which educational institutions are not required to furnish Form 1098-TsPDF. For details, please see “What is Form 1098-T, Tuition StatementPDF and how do I get it?”

If you claimed expenses that were not reported on the Form 1098-T PDF in Box 1 as amounts paid or if your school reported the amount you were charged for qualified expenses in Box 2, please send us copies of paid receipts, cancelled checks or other documents as proof. See your letter for further instructions for what documents to send. If you do not have the letter, see our page Forms 886 May Help You for the Forms 886-H-AOC and 886-H-AOC-MAX for examples. Form 886-H-AOC is also available in Spanish.

Audit and examination process

IRS selects income tax returns for examination identified by computer programs showing a return has incorrect amounts. The examination may or may not result in a change to your tax or credits.

Use the following links for additional information:

• Publication 3498-A, The Examination Process (Examinations by Mail)PDF
• Publication 556, Examination of Returns, Appeal Rights, and Claims for RefundPDF

Education Savings Accounts

529 Plans States may establish and maintain programs that allow you to either prepay or contribute to an account for paying a student’s qualified education expenses at a postsecondary institution. Eligible educational institutions may establish and maintain programs that allow you to prepay a student’s qualified education expenses. If you prepay tuition, the student (designated beneficiary) will be entitled to a waiver or a payment of qualified education expenses. You can’t deduct either payments or contributions to a QTP. For information on a specific QTP, you will need to contact the state agency or eligible educational institution that established and maintains it.

No tax is due on a distribution from a QTP unless the amount distributed is greater than the beneficiary’s adjusted qualified education expenses. Qualified expenses include required tuition and fees, books, supplies and equipment including computer or peripheral equipment, computer software and internet access and related services if used primarily by the student enrolled at an eligible education institution. Someone who is at least a half-time student, room and board may also qualify.

Coverdell A Coverdell education savings account (Coverdell ESA) is a trust or custodial account set up in the United States solely for paying qualified education expenses for the designated beneficiary of the account. This benefit applies not only to qualified higher education expenses, but also to qualified elementary and secondary education expenses. There are certain requirements to set up a Coverdell ESA:

• When the account is established, the designated beneficiary must be under the age of 18 or be a special needs beneficiary.
• The account must be designated as a Coverdell ESA when it is created.
• The document creating and governing the account must be in writing, and it must meet certain requirements.

Contributions

You may be able to contribute to a Coverdell ESA to finance the beneficiary’s qualified education expenses. Contributions must be made in cash, and they’re not deductible. Any individual whose modified adjusted gross income is under the limit set for a given tax year can make contributions. Organizations, such as corporations and trusts can also contribute regardless of their adjusted gross income. Contributors must contribute by the due date of their tax return (not including extensions). There’s no limit to the number of accounts that can be established for a particular beneficiary; however, the total contribution to all accounts on behalf of a beneficiary in any year can’t exceed $2,000.

Distributions

In general, the designated beneficiary of a Coverdell ESA can receive tax-free distributions to pay qualified education expenses. The distributions are tax-free to the extent the amount of the distributions doesn’t exceed the beneficiary’s qualified education expenses. If a distribution exceeds the beneficiary’s qualified education expenses, a portion of the earnings is taxable to the beneficiary. Amounts remaining in the account must be distributed within 30 days after the designated beneficiary reaches age 30, unless the beneficiary is a special needs beneficiary. If the beneficiary dies before attaining the age of 30, amounts remaining in the account must be distributed within 30 days after the date of death. Certain transfers to members of the beneficiary’s family are permitted.

You should receive a Form 1099-Q, Payments from Qualified Education Programs (Under Sections 529 and 530) from each of the Coverdell ESAs from which you received a distribution. Form 1099-Q should be made available to you by January 31, 2023.

Additional Information

For information on contributions and how to determine the part of any distribution that is taxable earnings, refer to Chapter 6 of Publication 970, Tax Benefits for Education.

Page Last Reviewed or Updated: 26-Jan-2023

Employer Education Assistance

If you receive educational assistance benefits from your employer under an educational assistance program, you can exclude up to $5,250 of those benefits each year. This means your employer should not include the benefits with your wages, tips, and other compensation shown in box 1 of your Form W-2.

To qualify as an educational assistance program, the plan must be written and must meet certain other requirements. Your employer can tell you whether there is a qualified program where you work.

If your employer pays more than $5,250 for educational benefits for you during the year, you must generally pay tax on the amount over $5,250. Your employer should include in your wages (Form W-2, box 1) the amount that you must include in income.

Education Expense Deduction (Above-the-Line)

Educators can deduct up to $250 ($500 if married filing jointly and both spouses are eligible educators, but not more than $250 each) of unreimbursed business expenses. The educator expense deduction, claimed on either Form 1040 Line 23 or Form 1040A Line 16, is available even if an educator doesn’t itemize their deductions. To do so, the taxpayer must be a kindergarten through grade 12 teacher, instructor, counselor, principal or aide for at least 900 hours a school year in a school that provides elementary or secondary education as determined under state law.

Those who qualify can deduct costs like books, supplies, computer equipment and software, classroom equipment and supplementary materials used in the classroom. Expenses for participation in professional development courses are also deductible. Athletic supplies qualify if used for courses in health or physical education.

For additional IRS resources see our tax topic on Educator Expense Deduction.