Education tax credits help offset the expenses of higher learning by reducing the tax an individual would owe the IRS and may increase their refund if they have no tax liability. Keep in mind, neither of these credits are available if the taxpayer's filing status is Married Filing Separately, or if they are claimed as a dependent on someone else's return. Credits can be claimed for the taxpayer as well as any qualifying dependents.
- The American Opportunity Credit offers a maximum tax credit of $2500 for qualified education expenses for each qualifying student on a tax return. This credit is available only for the first four years that an individual is in college. Up to 40% of the credit is refundable, which means that if the taxpayer has no tax liability, up to $1000 can be added to their refund. This credit starts to phase out when the taxpayer's modified AGI reaches $80,000 and is disallowed when their AGI reaches $90,000.
- The Lifetime Learning Credit offers a maximum credit of $2000 per tax return, regardless of how many qualified students are on the return. This credit is available for any qualified education expenses as long as the student is enrolled in at least one course at an eligible institution. The benefit begins to phase out when the taxpayer's modified adjusted gross income reaches $50,000 and is disallowed when their AGI reaches $60,000. This credit is non-refundable, meaning the credit will only reduce tax liability. Once the tax liability is reduced to zero, any remaining credit will not be added to the refund.
If you pay college expenses for more than one student in the same year, you can choose to take credits on a per-student, per-year basis. For example, you can claim the American Opportunity Credit for one student and the Lifetime Learning Credit for the other student.
Students are given Form 1098-T to show either payments paid to or billed from an educational facility. If students paid qualified tuition, or if someone paid on the student's behalf, the student (or if the student is a dependent, the taxpayer) may be able to claim an education credit on their tax return. Students cannot claim an education credit for any amount that was not paid as a qualified tuition or expense. Merely being billed for an expense does not qualify the student for the credit.
Box 1 on Form 1098-T shows the amount that was paid to the institution on the student's behalf. This amount includes any scholarships, grants, and loans that were paid for the student. Box 5 will show the amount of scholarships and grants that were processed by the institution. When calculating the amount of actual expenses paid by the student, subtract the amount listed in box 5 from the total in box 1.
Example: On a student's Form 1098-T, Box 1 shows $8500 was paid to the educational institution and Box 5 shows $3500 was received by the institution in a scholarship. Only $5000 in qualified education expenses can be claimed on the tax return.
For applicable years, to enter Education Credits in TaxSlayer Pro, from the Main Menu of the tax return select:
- Credits Menu
- Education Credits (8863)
- Select New or double-click the entry you wish to Edit
- Select the student that is eligible for the Education credit from the drop box
- Enter the qualifying expenses for this student
- Select the desired credit or deduction - American Opportunity Credit or Lifetime Learning Credit
If the IRS reduced or denied the American Opportunity Credit in a prior year for any reason other than a math or clerical error, Form 8862, Information To Claim Certain Refundable Credits After Disallowance, may need to be attached to the tax return for the year in which the credit is being claimed.
Education-related deductions
- The Tuition/Fees Deduction (2017 and prior tax years), no longer available after 2017, was not a credit but an adjustment to income that allowed taxpayers to deduct a maximum of $4,000 for qualified students enrolled at an eligible educational institution. Taxpayers could only claim a deduction for the amounts they paid for the educational expenses. If expenses were paid by some other benefit, the student, or by some other third party, the taxpayer could not claim a deduction The student also needed to have obtained their high school diploma or GED. This deduction reduced AGI, so if the taxpayer had no AGI, this deduction offered no benefit.
To enter the Tuition and Fees Deduction in TaxSlayer Pro for tax years 2017 and prior, from the main menu of the return (Form 1040) select: - Adjustments Menu
- Tuition and Fees Deduction (8917)
- Select New or double-click the entry you wish to Edit.
- Select the student that is eligible for the Education credit from the drop box
- Enter the qualifying expenses for this student
- Select Tuition & Fees Deduction
- The Student Loan Interest Deduction is an adjustment to income appearing on Schedule 1 of the Form 1040. Taking this deduction requires the student receive Form 1098-E. See here for more information.
Note: This is a guide to entering education expenses into the TaxSlayer Pro program. This is not intended as tax advice. For additional information, refer to the Additional Information links below.
Additional Information:
Instructions for Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits)
Publication 970, Tax Benefits for Education
American Opportunity Tax Credit
American Recovery and Reinvestment Act (ARRA)
Tax Benefits for Education: Information Center
Form 8862, Information To Claim Certain Refundable Credits After Disallowance
