Tax Credits

2018 Tax Year - Federal Tax Benefits for Higher Education

The federal government provides a number of tax incentives that can help lower the cost of higher education.  These incentives include:

  • Tax credits that directly reduce the amount of tax you pay
  • Tax deductions that reduce the amount of your income that is taxed

You may qualify for more than one of these incentives, but there are some restrictions.  It's a good idea to calculate your taxes multiple ways to find the maximum benefits available to you.

  • The 1098-T Statement
  • The American Opportunity Tax Credit
  • The Lifetime Learning Tax Credit
  • Claiming Tax Credits
  • Tuition and Fees Tax Deduction
  • Student Loan Interest Deduction
  • Taxes on Student Aid and Loan Forgiveness


The 1098-T Statement

You will receive information about your educational expenses in a 1098-T Statement from Thomas Jefferson University or from the  institution of higher education you attended. Students should, in most cases, receive Form 1098-T from their eligible educational institution by January 31, 2019.  (You might receive this by mail or electronically.  Be sure to save this information, or give it to the person who claims you on their tax return if you don't claim yourself.)

*NEW* Unlike in previous years, for tax year 2018, a taxpayer does not have to have a 1098-T form to claim the tuition and fees deduction, American Opportunity Credit or Lifetime Learning Credit.  If the student did not receive a Form 1098-T because the student's educational institution is not required to send one to the student under existing rules, the taxpayer may still apply for these educational benefits.

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The American Opportunity Tax Credit

The American Opportunity Tax Credit offsets what you pay for the first four years of higher education by reducing the amount of income tax you pay.  In addition, the credit is partially refundable so you may be able to get a check from the IRS even if you don't owe any income tax.

The amount of the credit can be up to $2500 per student and up to 40 percent of the credit may be refundable.  

*NEW* If you claim the American opportunity credit even though you're not eligible, you may be banned from claiming the credit for up to 10 years.

*NEW* You must have a taxpayer identification number (TIN) by the due date of your 2017 return (including extensions) in order to claim the American opportunity credit on either your original or an amended 2017 return, even if you later get a TIN. 

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The Lifetime Learning Tax Credit

Unlike other credits, the Lifetime Learning Credit is available for all types of post-secondary education. Generally, you should only use this credit once you have exhausted your eligibility for more generous credits. This credit may be particularly helpful to graduate students.

The credit provides up to $2,000 per tax return (not per student). Unlike the American Opportunity Tax Credit, this credit is non-refundable so the maximum credit is limited to the amount you owe.

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Claiming Tax Credits

To claim any higher education tax credit, you must report the amount of your qualified expenses (minus the amount of certain scholarships, grants, and tax-free employer-provided assistance received) on IRS Form 8863 - Education Credits.

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Tuition and Fees Tax Deduction

This deduction can reduce your taxable income by as much as $4,000 and may benefit your if you are not eligible for any of the tax credits. It is an adjustment to your income so you can claim this deduction even if you do not itemize deductions on Schedule A of Form 1040.

You can't claim both an education credit and the Tuition and Fees Deduction for the same student for the same year, but you can take the deduction for one student and a credit for another.

Calculate your Tuition and Fees Deduction with IRS Form 8917 - Tuition and Fees Deduction.

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Student Loan Interest Deduction

This deduction allows you to deduct interest paid on student loans for yourself, your spouse, of your dependents. It can reduce your taxable income by as much as $2,500. The amount of the Student Loan Interest Deduction you are eligible for depends on the amount of interest paid and your income. It is an adjustment to your income so you can claim this deduction even if you do not itemize deductions on Schedule A of Form 1040.

Figure your Student Loan Interest Deduction using the Student Loan Interest Deduction Worksheet 4-1.

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Taxes on Student Aid and Loan Forgiveness

Scholarships, fellowships, and grants that you received and that are reported on the 1098-T may need to be reported as taxable income in certain circumstances, but are often tax-free. In general, if you are pursuing a degree, certificate, or program of training towards gainful employment, and used the funds to pay tuition, fees, or for required books, supplies and equipment, these sources of assistance are not counted as taxable income.

If you've received a student loan that states it can be forgiven, canceled, or paid if you work for a certain period of time, in certain professions, for any of a broad class of employers, then the amounts forgiven may qualify for tax-free treatment.

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*Thomas Jefferson University-East Falls provides this information to students and parents solely for informational purposes and it is not intended to be tax or legal advice. For more information, see IRS Publication 970 or consult a qualified tax advisor.

The above information is compiled from the National Association of Student Financial Aid Administrators (NASFAA).