Education Tax Benefits

Education Tax Benefits

Tuition and Fees Deduction:
The tuition and fees deduction allows taxpayers to deduct up to $4,000 per family for the cost of qualified tuition and fees paid for yourself, your spouse or your dependent(s) to a qualified educational institution. The deduction is available through 2012 and is allowed even if you do not itemize your deductions on Schedule A of Form 1040.

The Tuition and Fees Deduction reduces taxable income as an "above the line" deduction, whereas, the American Opportunity tax credit and Lifetime learning tax credit provide a direct offset against income taxes. However, if you elect to use the Tuition and Fees Deduction, you cannot also claim the American Opportunity or Lifetime Learning Tax Credits.

American Opportunity Tax Credit:
The American Opportunity tax credit replaces the Hope tax credit through 2012. It enables a taxpayer to claim a tax credit of up to $2,500 per student for the cost of qualified tuition and related expenses pertaining to the first four years of post-secondary education at an eligible educational institution. The credit applies to tuition and related expenses paid by the taxpayer during the tax year on behalf of the taxpayer, the taxpayer’s spouse, or the taxpayer’s dependents. To be eligible, the student must be enrolled in an undergraduate degree program, and carry at least one-half the normal full-time work load (i.e., 6 credits per semester) for the course of study that the student is pursuing in any academic period during the tax year.

Lifetime Learning Tax Credit:
The Lifetime Learning tax credit is more broadly applicable to any level of post-secondary education, and it enables a taxpayer to claim a tax credit of up to $2,000 per family for the cost of qualified tuition and related expenses paid by the taxpayer during the tax year on behalf of the taxpayer, the taxpayer’s spouse, or the taxpayer’s dependents. Qualified tuition and fees include the cost of any course of instruction (e.g., undergraduate, graduate and continuing education) taken at an eligible educational institution in order to acquire or improve job skills.

Income Limitations:
The income limitations are different for each education tax benefit.

A Tuition and Fees Deduction up to $4,000 is available if your adjusted gross income is not more than $65,000 for single taxpayers and $130,000 if you are married filing jointly. A maximum tuition and fees deduction of $2,000 is available for those with incomes between $65,000 and $80,000 for single taxpayers, and between $130,000 and $160,000 for married taxpayers. No tuition and fees deduction is allowed if your adjusted gross income is greater than $80,000 for single taxpayers and married taxpayers filing joint returns of $160,000 or greater.

The American Opportunity Tax Credit is available to single taxpayers with adjusted gross income of $80,000 or less, and married taxpayers filing joint returns of $160,000 or less. A proportional phase out takes place for those with incomes between $80,000 to $90,000 for single taxpayers, and between $160,000 and $180,000 for married taxpayers. Married taxpayers must file a joint return in order to claim the tax credit.

The Lifetime Learning Tax Credit is available to single taxpayers with adjusted gross income of $50,000 or less, and married taxpayers filing joint returns of $100,000 or less. A proportional phase out takes place for those with incomes between $50,000 and $60,000 for single taxpayers, and between $100,000 and $120,000 for married taxpayers. Married taxpayers must file a joint return in order to claim the tax credit. Return To Top

Qualified Tuition and Related Expenses:
Qualified tuition and related expenses are different for each tax benefit.

Qualified tuition and related expenses for the Tuition and Fees Deduction are defined as tuition and fees required for the enrollment or attendance of the taxpayer, the taxpayer’s spouse, or the taxpayer’s dependents at an eligible educational institution.

Qualified tuition and related expenses for the American Opportunity Tax Credit are defined as tuition and fees required for the enrollment or attendance of the taxpayer, the taxpayer’s spouse, or the taxpayer’s dependents at an eligible educational institution for courses of instruction. For 2011 and 2012, qualified tuition and related expenses has been expanded to include expenditures for “course materials.” For this purpose, the term “course materials” means 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. The University is considered an eligible education institution. Qualified tuition and fees do not include: (1) amounts paid for any course or other education involving sports, games, or hobbies, unless the course or other education is part of the student’s degree program; and (2) charges and fees associated with room, board, insurance, transportation, and similar personal, living, or family expenses.

Qualified tuition and related expenses for the Lifetime Learning Tax Credit are defined as tuition and fees required for the enrollment or attendance of the taxpayer, the taxpayer’s spouse, or the taxpayer’s dependents at an eligible educational institution for courses of instruction. The University is considered an eligible education institution. Qualified tuition and fees do not include: (1) amounts paid for any course or other education involving sports, games, or hobbies, unless the course or other education is part of the student’s degree program; and (2) charges and fees associated with room, board, insurance, books, equipment, transportation, and similar personal, living, or family expenses. Based on the tax law as enacted, it appears that the following tuition and fees imposed by the University would qualify for the each tax benefit: NJ Tuition, Non Resident Tuition, College Fee, Computer Fee, Student Resource Fee, Commuter Fee, Orientation Fee, and course specific fees. Based on the University’s understanding of the tax law, the following University imposed fees would not qualify for the tax benefits: Housing, Dining, Knight Express charges. NJPIRG Fees, Targum Fees, Parking Fees, RU Partial Payment Plan Fees and Late Fees. Return To Top

Eligible Payments:
The education tax credits are based on the amount of qualified tuition and fees actually paid by the taxpayer or the student claimed as a dependent on the taxpayer’s tax return. For this purpose, payments do not include scholarships, fellowships, financial aid grants (e.g., Federal Pell grants and New Jersey Aid grants) or non-taxable tuition remission benefits received by the student. The amount paid, however, would include amounts borrowed by the student (e.g., Perkins student loans and Federal Direct student loans) to pay for qualified tuition and fees.

IRS regulations provide rules for allocating scholarship, fellowship and financial aid grants among qualified and non-qualified expenses. The regulations generally provide that a non-taxable scholarship, fellowship or financial aid grant reduces the amount of qualified tuition and related expenses that a taxpayer may otherwise include in claiming education credit. Return To Top

The Tax Credit Calculation:
The American Opportunity Tax Credit is available for 100 percent of the first $2,000 of qualified tuition and fees paid and 25 percent of the next $2,000 paid per tax year per student. The maximum tax credit is $2,500 per student per year. The Lifetime Learning Tax Credit is available for 20 percent of the first $10,000 of qualified tuition and fees paid per year per family. The maximum tax credit is $2,000 per family per year. The American Opportunity and Lifetime Learning tax credits cannot both be claimed for the same student in the same tax year. The taxpayer may claim both tax credits on one tax return (for different students) but must choose which credit to claim for each student. Taxpayers will need to file IRS Form 8863 Education Credits with their tax returns to claim the tax credits. Return To Top

Additional Sources of Information:
The IRS has issued Publication 970, Tax Benefits for Higher Education, which describes the new tax credits along with other tax savings opportunities related to the costs of higher education. You may obtain this Publication at any IRS office or download it from the Internet or call 1-800-829-3676. The IRS will answer your tax questions at

1-800-829-1040.

In addition to IRS Publication 970, an explanation of the tuition and fees deduction as well as tax credits are included in the instructions for completing individual income tax returns IRS Form 1040, 1040A, 8917, and 8863.

For more information, please call: (848) 932-2254

or email: Tax Help

This information is not intended as legal or tax advice. Individuals should obtain IRS Publication 970, Tax Benefits for Higher Education, or contact a tax advisor about personal income tax situations.