Your Taxes: If You’re Paying Tuition …

Alden Wicker
Posted

This story has been updated to reflect the 2013 tax year.

Whether you’re a student paying your way through school, a parent paying for your kid’s education, or a spouse paying for your partner’s grad school, the IRS will help you defray some of that cost.

There are also other ways that being or paying for a student, even if you’re just taking continuing education classes, will affect your taxes.

Read on to find out all you need to know:

Students Can Still Be Dependents

The first thing you should know is that students can still qualify as dependents of their parents. This has huge implications for your taxes, because it affects what tax credits, deductions and exemptions you can take. Normally, any qualifying child who is 19 or over is no longer a dependent. But if she or he is:

  • A full-time student
  • Under 24 years old
  • Providing less than half his or her own support, and
  • Filing as single or married filing separately …

… then she qualifies as a dependent. For you parents out there, this means you can still claim an exemption for her. Students, it means that if you are filing taxes, you cannot claim any exemptions, and you also won’t be able to claim certain credits and deductions. (But that’s nothing to complain about: It seems like a fair trade to have your parents paying for more than half of your expenses!)

Get These Deductions

Ah, lovely deductions. Those are the wonderful costs, like education expenses or IRA contributions, that the IRS subtracts from our income to reduce the amount it will actually tax us on. You might qualify for one or both of the following special deductions:

Do You Have a Student Loan?

You can deduct up to $2,500 for the interest you paid on your student loan last year. If you did, you should have received a form 1098-E from the entity to which you paid interest. Do you fit these qualifications?

  • You are not filing under the status “married filing separately”
  • Your MAGI is less than $60,000 if you’re single and $155,000 if you’re married
  • You can’t be claimed as a dependent on your parents’ tax returns

Are You a Student?

Do you fit all of these qualifications?

  • You’re a student
  • You are not filing under the status “married filing separately”
  • Your AGI is less than $80,000 if you’re single and $160,000 if you’re married
  • You can’t be claimed as a dependent on your parents’ tax returns

Learn more about deductions and your AGI here.

If all the above are true, then you should fill out a 8917 Form. If you still aren’t sure, read the form to find out the exact requirements.

Note: You can’t use both the student deduction and education credits (more on those below) for the same student in the same year, so you should compare the tuition fees deduction to education credits for which you qualify to determine which one will give you the bigger break. The IRS explains.

Get These Credits

Education Credits

Education credits are claimed on the IRS form 8863. It’s important to note that you cannot claim the Lifetime Learning Credit and the American Opportunity Credit for the same student, even if he/she qualifies for both. You can mix and match your credits if you are paying for more than one student, choosing one credit for one student, another credit for the other, and then switching the next year. But no double crediting in the same year! We suggest taking the American Opportunity Credit if you are eligible for both, because you can claim more expenses and the credit can go up to $500 higher. Publication 970 will give you the nitty gritty of what we summarize below.

If you’re a full-time student: You could take the American Opportunity Credit, which is a modification of what used to be called the Hope credit. It allows you to take up to $2,500 off your taxes if you are working toward a degree or other educational accreditation.

You can claim this credit if:

  • You are an individual with a MAGI of $90,000 or less, or
  • You’re part of a married couple filing jointly with a MAGI of $180,000 or less

Even if you don’t pay taxes at all, you can get up to $1,000 refunded to you by taking this credit. You can learn more about the American Opportunity Credit on the IRS website.

If you’re taking continuing education classes: You could take the Lifetime Learning Credit, which goes up to $2,000 for post-secondary education expenses. You should take this if you are taking one or two post-secondary classes, but not working toward a degree.

There is no limit on the number of years the Lifetime Learning Credit can be claimed. In order to get this credit, you must either:

  • Pay qualified tuition expenses
  • Pay the education expenses for an eligible student (yourself, spouse or a dependent for whom you claim an exemption on your tax return)

You can claim this credit if:

  • You are an individual with a MAGI of $63,000 or less, or
  • You’re part of a married couple filing jointly with a MAGI of $127,000 or less

If You Have a Low Income …

If you’re a student paying your own way through grad school, you might be able to claim the Earned Income Credit, just because of the fact that graduate students are over 25 and aren’t known for their high earning power. This credit, worth up to $6,044 with three or more qualifying children, applies to people whose earned income and Adjusted Gross Income (which we show you how to find here) fall below a certain threshold. Unlike most credits, the EIC is refundable. That means when the value of the EIC tax credit you qualify for exceeds the amount of taxes you owe, you get a refund.

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If you do not have a child, in order to qualify you must:

  • Look at the chart below to see which category applies to you. If your income is less than the number listed, you may qualify.Be between 25 and 65 years old
  • Live in the United States for more than half the year, and
  • Not qualify as a dependent of another person
Single Married Filing Jointly
3+ Children $46,227 $51,567
2 Children $43,038 $48,378
1 Child $37,870 $43,210
No Children $14,340 $19,680

If you plan to claim this credit, you will need all the information listed here, such as last year’s federal and state income tax statements, all your income statements for the current filing year and information on caretakers of any dependent children.

Use This Form

There are three types of 1040 forms you have the option of using to file your taxes. Which one is for you?

If You’re a Parent or Spouse Paying for Tuition …

You will probably use the 1040A form, or the 1040 if you have a taxable income higher than $100,000. That’s because parents paying for tuition will probably still claim a dependent, along with education credits.

If You’re a Student Paying for Tuition …

You will probably be using the 1040A form, because you are claiming education credits but your finances are most likely simple.

Find out more about tax forms and which 1040 you should use here.

More on Taxes From LearnVest

Learn how to file your tax return.
If you need more time to file your taxes, you can ask for an extension. Here’s how.
We also have cheat sheets for homeowners, parents and married couples.

  • dcy1706

    Im a 24 year old single male who is a recent college grad with low income in 2012 but I still provided more than 50% of my mothers support. Do I get a tax credit for claiming her as a dependent?

  • hmmmm

    ok, here’s a goofy thing. I am a student who worked as a self-employed part of the year. As soon as I started taking my valid and appropriate business deductions, my earned income credit tanked bcause my net earnings were below the lower limit. So what’s that? You earn too little, you can’t get the EITC.