There are many tax benefits for education in the tax law. These tax benefits might be available to you if you’re saving for or paying education costs for yourself or another student who’s a member of your immediate family. It's important to remember, though, that most benefits apply only to higher education, and you generally can’t claim more than one benefit for the same qualifying education expense.
First up are the education tax credits. A tax credit reduces the amount of income tax that you pay dollar for dollar. These 2 credits are available:
Hope Credit. You might be able to claim a Hope Credit of up to $1,650 for qualified education expenses paid for each eligible student. This is a per-student limit, and it must be taken in the first 2 years of higher education. To learn more, see Tax Credits for Higher Education.
Lifetime Learning Credit. You might be able to claim a Lifetime Learning Credit of up to $2,000 for qualified education expenses that you paid. You can claim this credit only once per return, but there’s no limit on the number of years the credit can be claimed. To learn more, see Tax Credits for Higher Education.
In addition, there are 10 other education-related tax benefits that you might be able to take advantage of:
Student loan interest deduction. If you’ve started to pay back loans taken to finance higher education, you might be eligible to deduct up to $2,500 per return per year. The student loan interest deduction is taken as an adjustment to income, which means you can claim the deduction even if you don’t itemize deductions. To learn more, see Deducting Student Loan Interest.
Tuition and fees deduction. You might be able to deduct up to $4,000 of qualified education expenses paid during the year for yourself, your spouse, or a dependent. To learn more, see Tuition and Fees Deduction.
Student loan cancellation. Generally, if you’re responsible for making loan payments and the loan is canceled, you must include the amount that was forgiven in your gross income for tax purposes. However, if your student loan is canceled, you might not have to include the amount in income if you fulfill certain requirements.
Student loan repayment assistance. Loan repayment programs provide student loan repayment assistance to participants if those participants provide certain services, generally primary health services, in areas where shortages of these services exist.
Coverdell education savings accounts. Coverdell education savings accounts (ESAs) are tax-advantaged accounts that allow taxpayers to save money for education. The earnings are tax-free if used for qualified education expenses. Contributions to a Coverdell ESA aren’t deductible, but money deposited in the account grows tax-free until you withdraw it. To learn more, see Coverdell Education Savings Accounts.
Qualified tuition plans. A qualified tuition plan (QTP) is a personal savings plan established for paying a student’s qualified education expenses at an eligible educational institution. Distributions from the account are tax-free if you use the money to pay for qualified expenses, such as room and board. To learn more, see Qualified Tuition Plans (Section 529).
IRAs. You can take a distribution from your IRA before you reach age 59½ without paying the 10% additional tax on early distributions if, for the year of the distribution, you pay qualified education expenses for yourself, your spouse, your children, or your grandchildren. To learn more, see Individual Retirement Accounts (IRAs).
Tax-free U.S. Savings Bond interest. Generally, you must pay tax on the interest earned on U.S. Savings Bonds. However, if you cash in savings bonds for qualified education expenses, you don’t have to pay tax on the interest. To learn more, see U.S. Savings Bond Interest Exclusion.
Employer-provided educational assistance. If you receive educational assistance benefits from your employer under an educational assistance program, you can exclude up to $5,250 of those benefits each year. This means that you don’t have to include the benefits on your tax return. To learn more, see Employer-Provided Educational Assistance.
Deduction for work-related education. If you’re an employee and you itemize deductions, you might be able to claim a deduction for expenses related to any work-related courses that you take. To learn more, see Education Expenses and Work.
For more information about these tax benefits, see IRS Publication 970: Tax Benefits for Education.