Tax Considerations for College Students

Read the Article

With college classes starting throughout the year, it’s important to consider your taxes year-round because there are several tax credits that can help reduce your tax burden. Because these tax credits can lower your tax liability, it’s important to look ahead during the back-to-school rush.

American Opportunity Tax Credit

The government offers some tax credits for parents and college students. The first credit is called the American Opportunity Tax Credit (AOTC). The AOTC is available for the first 4 years of an eligible student’s higher education. In order to be considered an eligible student, you must be pursuing a degree or recognized education credential, be enrolled at least half-time for at least one academic period, not finished the first four years of higher education, not claimed the AOTC for more than 4 tax years, and not have a felony drug conviction at the end of the year.

The American Opportunity Tax Credit offers an annual maximum tax credit of $2,500 per eligible student. If the credit brings your tax to $0, then you may be eligible for a refundable credit of up to $1,000 (based upon 40% of any remaining credit). The full amount of the credit is available to individuals whose modified adjusted gross income is $80,000 or less; or $160,000 or less for married couples filing a joint return.

This tax credit is phased out for households with incomes higher than these levels and is completely phased out when modified adjusted gross income equals $90,000 or $180,000 if you are filing a joint return.

The American Opportunity Credit offers a higher tax credit limit than Lifetime Learning Credit. 

College student on her way to class holding book and phone.

Lifetime Learning Credit

The second credit available for qualified education expenses is the Lifetime Learning Credit (LLC).  The credit is worth up to $2,000 per tax return and may be available if your modified adjusted gross income is $80,000 or less ($160,000 if you are married filing jointly).  The credit is completely phased out when your modified adjusted gross income is $90,000 or more and $180,000 if you’re filing as married filing jointly. The advantage of the Lifetime Learning Credit is there is no limit on the number of years that the credit can be claimed for each student. The credit is available if you are taking one class, not pursuing a degree, acquiring or improving your job skills, or are taking classes as an undergraduate, graduate, or a professional degree course.

529 Savings Plans

Tax-free college savings plans and prepaid college tuition programs can be used for a wide assortment of eligible higher-education expenses such as computer equipment, classroom materials, books, educational supplies, dorm fees, and tuition.

529 plans, or Qualified tuition programs (QTPs), are tuition programs that have been qualified and authorized under section 529 of the Internal Revenue Code. In recent years, they have become a wise and popular way for families to save for a child’s college education. Though contributions to 529 plans are not tax deductible on federal returns, the perks are that there is no income limit for the contributors, your investments grow tax-deferred, and distributions for qualified college expenses are tax-free.

529 plan distributions (money taken out of the account to pay for college-related expenses) are tax-free as long as they are used to pay qualified higher education expenses for a designated beneficiary. It is best to check with your 529 plan account manager and with the IRS to make absolutely sure your expense is qualified.

Qualified expenses include tuition, fees, books, supplies, and equipment required for any apprenticeship programs. Room and board also qualify if the 529 plan beneficiary is at least an official half-time student.

College student reading a document on a bench.

As a side note, up to $10,000 of 529 plan funds can also be used to pay for tuition for private, public, or religious elementary, middle, or high schools.  

If your child is already in college, then it’s not going to do much good to start a new 529 plan. However, even if you have a child in high school, you still have time to contribute to a 529 plan and reap some of the benefits.

Filing Taxes

It’s important to get a jump on things because there are so many deductions and tax considerations when dealing with college expenses. The education credit is typically claimed by the parent if the student can be claimed as a dependent. You should receive a Form 1098-T, Tuition Statement, from any institution to which you pay tuition fees.  This form is used to claim the education credits on your tax return. Be sure to hold onto this form at tax time.

Many times, the form will be uploaded to the student’s account. If you don’t receive it in the mail, be sure to check with your student. It is also a good idea to keep an ongoing record of your expenses paid for college. 

No matter what moves you made last year, TurboTax will make them count on your taxes. Whether you want to do your taxes yourself or have a TurboTax expert file for you, we’ll make sure you get every dollar you deserve and your biggest possible refund – guaranteed.

23 responses to “Tax Considerations for College Students”

  1. I filed taxes already and I forgot to include a tuition I paid for Spring Semester 2015 but I paid it December 2014. Can I includeit on my 2015 tax whenI file?

    • Hi Kae,
      You would have to amend your 2014 taxes, if it has been accepted and approved by the IRS. If it is rejected you can fix your return and add your tuition paid.
      Thank you,
      Lisa Greene-Lewis

  2. Co-habitating for 19 years. Both 60 years of age. Contemplating marriage now that it’s legal. Each of our AGIs is around 100K No kids, have mortgage. Each have home office. One business credit or two?

    • Hi Susan,
      Even if you are legally married, your home office deduction will be related to each of your separate businesses. If you are legally married you will file one tax return, but you will each have a Schedule C for each of your businesses that have the home office deduction, which is filed with one federal tax return.
      Thank you,
      Lisa Greene-Lewis

  3. We have two daughters both full time students who live away from home & are self supporting, we have been told by our tax person that we have to claim them until they’re 24. We would rather not claim them & allow them possible access to better financial aid. We realize this will cost us more but we think it would be more beneficial to them. Is this true, do we have no choice?

  4. My son has been out of college for about 10 years but we are still paying back college loans which my husband co-signed for. Can we get deduction for interest paid or the $2500 credit we used to take. Last year I was notified that I could not take it and don’t understand why.

    • My son has been out of college for about 10 years but we are still paying back college loans which my husband co-signed for. Can we get deduction for interest paid or the $2500 credit we used to take. Last year I was notified that I could not take it and don’t understand why.

  5. Hi, I took classes in two colleges last year. I attended school for 10 months. How do I claim to be be full time student? I need to know so as to be able to claim my daughter’s preschool fee.

  6. This is a question i have not comment. I am a full time student that does not work. Do I still qualify for either or all of the above student tax credits? I really need to find out. And if I do qualify what forms do I need when filing my taxes?

  7. I am taking classes to become a teacher, through an Alternative Certification program. Can I take a tax credit? if so, which program.

  8. I am a junior in college and I have worked every year that I’ve been in school, except for my freshman year; yet whenever I file my taxes, I never receive the American Opportunity Credit, nor do I receive any other education deductions.
    Most of my friends who are also students seem to get it every year and one even laughed about how the government was “robbing” me.
    I do get financial aid, but so do my friends, and aside from the money the school gives me, I’ve basically been supporting myself all year.
    So my question to you is, why don’t I receive this credit. It seems as though I’m eligible, but Turbo tax won’t give it to me. And if it turns out I have been eligible all this time, can I amend my old returns to get the credit? Thanks!

  9. I am a junior in college and I have worked every year that I have been in school, except for my freshman year.
    I never receive the American Opportunity Credit, or any other education credit or deduction, while practically all of my other friends who are students receive it. I’ve prepared my taxes and gone to a professional, but I still don’t receive it.
    My question is why don’t I receive this tax credit, and if it turns out I am eligible, can I amend my previous returns? I hope this made sense and you can answer my question.

  10. I forgot to ask, what do I do with my 1098T? Is that just my record of what my school sent to the IRS? Or is that something I file?


  11. I was in school ALL of last year (I’m not going to a traditional school where I get the summer off, I’m at a trade school where I go to school through the whole year) and I didn’t work so I earned ZERO income. I know I don’t have to file taxes if I didn’t earn any income, but I qualify for the American Opportunity Credit and the Lifetime Learning Credit… In order to get the credit, do I have to file my taxes?

  12. I am starting grad school in the Spring, but I still work full time. Does the credit apply for graduate level classes ad well as undergrad?


  13. My son will enter college Fall 2012. I don’t claim him on my taxes but will pay half of his tuition. Am I eligible for the education credit for my portion of the tuition on my taxes even though I don’t claim him?

    • Hi Doshia,
      Unfortunately you can only take the deduction for education if you claim him as a dependent. If he files a tax return and is not claimed as a dependent by someone else he can take the deduction for his college expenses even if you paid them.
      Thank you,
      Lisa Greene-Lewis

  14. I want to get into tax return preparation what tax software is required. This would be for individuals and small businesses

  15. I have a son who completed his internship for 8 months as part of the school program ,can I use American Opportunity credit, Lifetime Learning credit and Tuition fee and deductions at the same time and maximize them?

    • Hi Manuel,
      No you can only use one credit or deduction at a time for the same eligible expenses.
      Thank you,
      Lisa Greene-Lewis

Leave a Reply