How to Do Your Taxes if You’re Paying Tuition

Alden Wicker

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 AGI is less that $75,000 if you’re single and $150,000 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 that $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

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

For tax year 2012, the IRS starts accepting most tax returns starting January 30th, 2013. But if you are claiming an education credit, the IRS will not accept and process your return until mid-February. Check the IRS website for updates on the exact date as mid-February approaches.

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.