Tax Topic

Education Benefits

The tax code provides a few ways to help families and students with higher education expenses.

The American Opportunity Credit can be for up to $2,500 per student per year (100% of the first $2,000 plus 25% of the next $2,000 of tuition paid to an eligible university). The credit applies to the first four years of post-secondary education. The modified adjusted gross income (MAGI) phase-out ranges are $80,000 - $90,000 for single filers and $160,000 - $180,000 for joint filers. The credit includes expenses for course materials (all books, fees, supplies and equipment) along with tuition. If the credit is more than your income tax liability, 40% of it is refundable and the full credit is allowed against the Alternative Minimum Tax.

The Lifetime Learning Credit is a nonrefundable credit up to $2,000 (per tax return; 20% of up to $10,000) of tuition plus any fees, supplies, equipment, and books purchased directly from the school as a condition of enrollment (so NOT standard textbooks if not purchased from the school) paid for students for an unlimited number of years. It is available for both degree and non-degree students. The MAGI phase-out ranges for 2022 are $80,000 - $90,000 for single filers and $160,000 - $180,000 for joint filers.

Tuition & Fees Deduction is for qualified tuition and related expenses and is for up to $4,000 for taxpayers whose adjusted gross income does not exceed $65,000 ($130,000 in the case of a joint return); and up to $2,000 for taxpayers whose adjusted gross income does not exceed $80,000 ($160,000 in the case of a joint return).

You get to use only one of the above education credits per student, per year. We will use the information you give us to determine which option will yield the lowest tax liability for you, just make sure you give us the information such that we can tell what portions are tuition, books/fees, and room & board; all by student.

For 529 plans, you may take distributions for the reimbursement tuition, books, fees, supplies, computers, software, and services. Also, room and board while in school, but not travel to and from school. This does not apply to the deductions and credit above, rather it defines "qualified education expenses" which can be covered by distributions from 529 plans, including college expenses and up to $10,000 for elementary and secondary school expenses.

Here is a link to the IRS Tax Benefits for Education: Information Center:

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