The Internal Revenue Code provides both tax credits and deductions that may be taken to reduce the federal income tax burden for students or those paying the costs of a students higher education. Briefly, credits directly reduce the amount of income tax owed, while deductions reduce the amount of taxable income upon which income taxes are computed. Per IRS regulation, the UW reports all tuition charges, financial aid, grant or scholarship payment information for students on the 1098T.
The UW does not report any payment information to the IRS since students may pay other fees on their student accounts. Information is reported for the current calendar year only. Amounts prepaid for future quarters/years will not be reported.
Expenses for books, supplies and/or equipment are not reported to the IRS. Students must keep the receipts and report these expenses when filing a tax return.
American Opportunity Credit
- Applies to the first four years of post-secondary education
- Tax credit of up to $2,500 of the cost of qualified tuition and related expenses paid during the taxable year
- Based on 100% of the first $2,000, plus 25% of the next $2,000 of tuition, fees, and course materials paid during the taxable year
- Qualified tuition and related expenses has been expanded to include expenditures for "course materials"
- Eligibility is limited to taxpayers with adjusted gross income of $80,000 or less for single filers ($160,000 or less for joint filers)
Lifetime Learning Credit
- up to $2,000 a year available for all years of postsecondary education and for courses to acquire or improve job skills
- there is no limit on the number of years the credit can be claimed for each student
- eligibility is limited to taxpayers with adjusted gross income of $55,000 or less for single ($110,000 or less for joint filers)
The Lifetime Learning Credit is for qualified tuition and related expenses paid for eligible students enrolled in an eligible educational institution. This credit can help pay for undergraduate, graduate and professional degree courses--including courses to acquire or improve job skills. There is no limit on the number of years you can claim the credit. It is worth up to $2,000 per tax return.
What is the LLC worth?
The amount of the credit is 20 percent of the first $10,000 of qualified education expenses or a maximum of $2,000 per taxpayer. The LLC is not refundable. So, you can use the credit to pay any tax you owe but you won’t receive any of the credit back as a refund.
If you are unable to claim the AMERICAN OPPORTUNITY or LIFETIME Learning Tax Credits, you may still be able to deduct qualified higher education expenses from your income. For those earning $80,000 or less a year ($160,000 if married and filing jointly), you may deduct up to $4,000 per year of qualified tuition and fees paid to the UW.
The preceding information and that which follows is for general information only, and does not constitute tax advice. For your convenience we have provided links to Other Useful Web Sites. Because income tax rules are complicated, it may be helpful to consult with the IRS, directly, or a tax advisor.
Who Is Eligible For The Education Tax Credits
Who Can Claim an Education Credit?
There are additional rules for each credit, but you must meet all three of the following for either credit:
- You, your dependent or a third party pays qualified education expenses for higher education.
- An eligible student must be enrolled at an eligible educational institution.
- The eligible student is yourself, your spouse or a dependent you list on your tax return.
If you’re eligible to claim the lifetime learning credit and are also eligible to claim the American opportunity credit for the same student in the same year, you can choose to claim either credit, but not both. You can't claim the AOTC if you were a nonresident alien for any part of the tax year unless you elect to be treated as a resident alien for federal tax purposes. For more information about AOTC and foreign students, visit American Opportunity Tax Credit - Information for Foreign Students.
Overview of Education Credits
|American Opportunity Credit - NEW||Lifetime Learning Credit|
|Maximum credit||Up to $2,500 credit per eligible student||Up to $2,000 credit per return|
|Limit on modified adjusted gross income (MAGI)||$160,000 if married filing jointly; $80,000 if single, head of household, or qualifying widow(er)||$110,000 if married filing jointly;
$55,000 if single, head of household, or qualifying widow(er)
|Refundable or nonrefundable||40% of credit may be refundable||Nonrefundable - credit limited to the amount of tax you must pay on your taxable income|
|Number of years of postsecondary education||Available ONLY if the student had not completed the first 4 years of postsecondary education before 2016||Available for all years of postsecondary education and for courses to acquire or improve job skills|
|Number of tax years credit available||Available ONLY for 4 tax years per eligible student (including any years(s) the Hope scholarship credit was claimed)||Available for an unlimited number of years|
|Type of program required||Student must be pursuing an undergraduate degree or other recognized education credential||Student does not need to be pursuing a program leading to a degree or other recognized education credential|
|Number of courses||Students must be enrolled at least half time for at least one academic period beginning during 2016 (or for the first 3 months of 2017 if the qualified expenses were paid in 2016)||Available for one or more courses|
|Felony drug conviction||At the end of 2016, the student had not been convicted of a felony for possessing or distributing a controlled substance||Felony drug convictions do not make the student ineligible|
|Qualified expenses||Tuition, required enrollment fees, and course materials that the student needs for a course of study whether or not the materials are bought at the educational institution as a condition of enrollment or attendance||Tuition and required enrollment fees (including amounts required to be paid to the institution for course-related books, supplies, and equipment)|
|Payments for academic periods||Payments made in 2016 for academic periods beginning in 2017 and in the first 3 months of 2017|
Qualified Education Expenses
Generally, qualified education expenses are amounts paid in 2016 for tuition and fees required for the student's enrollment or attendance at an eligible educational institution. It does not matter whether the expenses were paid in cash, by check, by credit or debit card, or with borrowed funds.
Only certain expenses for course-related books, supplies and equipment qualify.
- American opportunity credit: Qualified education expenses include amounts spent on books, supplies and equipment needed for a course of study, whether or not the materials are purchased from the educational institution as a condition of enrollment or attendance.
- Lifetime learning credit: Qualified education expenses include amounts for books, supplies and equipment only if required to be paid to the institution as a condition of enrollment or attendance.
Qualified education expenses do not include amounts paid for:
- Room and board, insurance, medical expenses (including student health fees), transportation or other similar personal, living, or family expenses.
- Any course or other education involving sports, games or hobbies, or any noncredit course, unless such course or other education is part of the student's degree program or (for the lifetime learning credit only) helps the student acquire or improve job skills.
Qualified Education expenses for any academic period must be reduced by tax-free grants, scholarships, fellowships, tuition exemptions and employer-provided educational assistance.
For questions regarding tuition charges, scholarships or financial aid recorded on the Student Database, email firstname.lastname@example.org, or call 206-221-2621.
University Reporting of Expenses and Aid Received
The University compiles information of qualified Education expenses charged and grant aid received for all students who were registered during the calendar year. This information is reported to the IRS.
If more information on the specific information reported to students is needed, call Student Fiscal Services at (206) 221-2621 during normal business hours, or email email@example.com
Obtaining Your 1098T Information
The University of Washington will mail you an IRS Form 1098T at the end of January. If you are registered for Winter quarter, the form will be mailed to your local address, otherwise it will be sent to your permanent address.
You may also print the information contained on the 1098T from MyUW Student Finances tab under the Tax category. As you do not submit this form to the IRS, an official form is not necessary to claim the tax credits.
Claiming the Credits
Use IRS Form 8863 to determine the amount of the credit. Be sure to read the instructions that accompany the form.
If you need further assistance, contact the IRS or a tax advisor. The University CANNOT provide assistance regarding your eligibility and/or the calculation of the credit.
Education Savings Account (ESA)
Taxpayers can invest up to $2,000 a year for each child under age 18. All earnings are entirely tax free, if they are used to finance a higher education.
Please review IRS publication 970 for specific information.
The Internal Revenue Code allows people under the age of 59 1/2 to withdraw money for higher education expenses from a regular IRA or the new Roth IRA without paying a penalty for early distribution. However, tax may be owed on at least part of the amount distributed. These funds may be used for the taxpayer's own higher education expenses, or for those of their spouse, child or grandchild.
Deduction for Interest on Education Loans
Taxpayers may deduct up to $2,500 in student loan interest paid in the previous tax year. The interest paid on the student loans may be for the taxpayer, the taxpayer's spouse or dependent. You cannot take a student loan deduction if your modified adjusted gross income (MAGI) is $75,000 or more ($150,000 or more if you are married and file a joint return).
Tuition and Fees Deduction
You may be able to deduct qualified education expenses paid during the year for yourself, your spouse or your dependent. You cannot claim this deduction if your filing status is married filing separately or if another person can claim an exemption for you as a dependent on his or her tax return. The qualified expenses must be for higher education.
The tuition and fees deduction can reduce the amount of your income subject to tax by up to $4,000. This deduction, reported on Form 8917, Tuition and Fees Deduction, is taken as an adjustment to income. This means you can claim this deduction even if you do not itemize deductions on Schedule A (Form 1040). This deduction may be beneficial to you if, for example, you cannot take the lifetime learning credit because your income is too high.
You may be able to take one of the education credits for your education expenses instead of a tuition and fees deduction. You can choose the one that will give you the lower tax.
Generally, you can claim the tuition and fees deduction if all three of the following requirements are met:
- You pay qualified education expenses of higher education.
- You pay the education expenses for an eligible student.
- The eligible student is yourself, your spouse, or your dependent for whom you claim an exemption on your tax return.
Other Useful Resources
Other resources that you might find useful for further information on the tax credits include:
+ Tax Information for Students
+ National Association of Student Financial Aid Administrators (NASFAA)
+ IRS Tax Topic - Tax Credits
+ IRS Publication 970 - Tax Benefits for Education
+ IRS Publication 17, Ch. 35 - Education Credits
Frequently Asked Questions about the American Opportunity and Lifetime Learning tax credits.