Education Who Should Take Education Tax Breaks: Parents or Students? Read the Article Open Share Drawer Share this:Click to share on Facebook (Opens in new window)Click to share on Twitter (Opens in new window)Click to share on LinkedIn (Opens in new window)Click to share on Pinterest (Opens in new window)Click to print (Opens in new window) Written by Jim Wang Published Mar 30, 2018 - [Updated Mar 5, 2020] 2 min read When it comes to education tax breaks, it’s important to carefully consider your options, and plan out who is going to take what tax break. This is an important distinction because it’s an either/or situation in terms of who gets the tax break. If the parent claims the education tax deduction or credit, then the child (in this case, the dependent) can’t claim it. If the child claims it for himself or herself, then the parent can’t claim it. Parents have to communicate with their kids since the education tax breaks are only allowed to be claimed on either one of your tax returns and not both. Is the Student a Dependent? First of all, you need to determine if the student is a dependent. If a parent claims his or her student as a dependent, then that’s who gets to take the tax credit or education deduction. Whether it’s the American Opportunity Tax Credit or the Lifetime Learning Credit, only one person gets the tax advantage and it often comes down to whether the student is a dependent in the eyes of the IRS. If a student is a dependent on someone else’s tax return, the student doesn’t qualify for these tax breaks. If a student isn’t claimed as a dependent, though, it’s possible for him or her to claim an education tax credit, or take the deduction. One thing to keep in mind, each student cannot claim more than one tax break. Should the Student Take the Tax Credit or Deduction? In some cases, it makes sense for the student to take the tax break. If the student is married, and no longer dependent on a parent for support, obviously that’s who should take the education tax break. Additionally, if the student makes enough money to owe taxes, it makes sense to reduce that tax bill as much as possible. Most of the time, though, students don’t earn enough money to owe taxes. As a result, in many cases, it makes more sense for parents to claim their children as dependents and reap the benefits of the tax break. After all, parents have spent quite a lot to raise their children, and probably help pay for college. It’s only reasonable that they receive some sort of financial benefit in return – and a lower tax bill is one way to recoup a few of those costs. Don’t worry about knowing these tax rules. TurboTax asks you simple questions about you and gives you the tax deductions and credits you’re eligible for based on your answers. If you have questions, you can connect live via one-way video to a TurboTax Live CPA or Enrolled Agent to get your tax questions answered. TurboTax Live CPAs and Enrolled Agents are available in English and Spanish and can also review, sign, and file your tax return. Previous Post ¿A quién puedo declarar como dependiente? Next Post 4 Little Known Tips to Help You Pay School Tuition Written by Jim Wang More from Jim Wang 14 responses to “Who Should Take Education Tax Breaks: Parents or Students?” I had 2 children in College and I was only given 1 of the education credits. I was always able to take two. Reply Hi Jacqueline, In order to receive the full credit allowable there is a gross income limit. Modified Adjusted Gross Income (MAGI) Limits for filing status: Single: $80,000 or less, maximum credit eligible. If your MAGI is over that but less than $90,000 the credit is reduced. Over $90,000 no credit. Married Filing Jointly (MFJ): $160,000 or less, maximum credit eligible. If your MAGI is over that but less than $180,000 the credit is reduced. Over $180,000 no credit. Thank you Reply My AGI was 19,357.00. Hello Jacqueline, There are 2 Education Credits: The American Opportunity Tax Credit (AOTC) & The Lifetime Learning Credit (LLC). Each credit has it’s own set of requirements. There could be multiple reasons regarding your eligibility of receiving one or both of the credits. Additionally, only the AOTC is partially refundable while the LLC is not a refundable credit. Some other key factors in claiming these credits are: AOTC: The credit has not been claimed for more than four tax years on an eligible student. Student must be enrolled at least half time in a degree program. The form 1098-T will reflect this. To understand other requirements and eligibility please see the IRS publication listed here regarding Education credits. https://www.irs.gov/pub/irs-pdf/p970.pdf Thank you an important question not answered here is, if I can’t claim the AOC because of higher income, and my son is a college student with a part time job, then can I choose to not claim him as a dependent, and have him file and receive the AOC ? Reply I was thinking that myself, however in reviewing the instructions for Line 7 of the 8863 the child won’t be eligible for the refundable credit:if they have earned income of less than half of their support, which I am guessing is the case. Reply Who Should Take Education Tax Breaks: Parents or Students? this article was so great…. Reply We claim my son as a dependent but he paid his tuition from a federal student loan that he has. Can we claim the amount that is listed on line 2 of the 1098-T that he received from his college? I assume that someone gets to claim it. Reply Hi Craig, If you claimed your son as a dependent you can claim the amount you paid for his tuition from a federal loan if you made payments on the federal loan last tax year. You may be able to get the American Opportunity Credit worth up to $2,500 per student if he is in the first four years of college or the Lifetime Learning Credit worth up to $2,000 per return even if he took only one class, but you will only be eligible for one education credit. TurboTax will ask you simple questions and give you the education credits you’re eligible for. You may also be eligible for the Student Loan Interest Deduction of up to $2,500 if you paid your son’s student loan. Thank you, Lisa Greene-Lewis Lisa Greene-Lewis Reply TurboTax will not allow the tuition credit on my dependent’s return because: “Your parents can claim you on their return.” Even if the parent (me) chooses not to take the dependency exemption, TurboTax will not allow the student (my son) to take the tuition credit on his return. So, even if my dependent and I both want to give up the dependent exemption, TurboTax still will not allow my son to take the tuition deduction. Is that contrary to the Reg cited above? Reply I think this is all wrong. You can’t choose who gets to take the credit. The student cannot claim themselves as a dependent unless their parents cannot claim them. The parent cannot forego the exemption in hopes that the student will get the education credit. The title of the article suggests that it’s a choice; it isn’t. From IRS literature: If you are entitled to claim an exemption for a dependent, that dependent cannot claim a personal exemption on his or her own tax return. Reply You are confusing two different issues. You’re correct that the dependent can’t claim a personal exemption if eligible to be claimed by their parents. However, if the parents choose not to claim the child as a dependent the child can take the education credits. In that case neither the parents or the child claim a dependency exemption for the child. This clearly spelled out in Reg Reg § 1.25A-1(f)(2), Ex 2. Reply form 8863 says if you are under 24 years old you cannot claim the refundable part of the credit. Shouldn’t it read that if you are over 24 you cannot claim the refundable part? Reply I think that this is a mistake in the IRS form 8863 also. Makes no sense that a student can’t claim credit if under 24. Most students are under 24 that attend college. Wonder if IRS has fixed form yet. H&R Block tax software hasn’t! 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I had 2 children in College and I was only given 1 of the education credits. I was always able to take two. Reply
Hi Jacqueline, In order to receive the full credit allowable there is a gross income limit. Modified Adjusted Gross Income (MAGI) Limits for filing status: Single: $80,000 or less, maximum credit eligible. If your MAGI is over that but less than $90,000 the credit is reduced. Over $90,000 no credit. Married Filing Jointly (MFJ): $160,000 or less, maximum credit eligible. If your MAGI is over that but less than $180,000 the credit is reduced. Over $180,000 no credit. Thank you Reply
Hello Jacqueline, There are 2 Education Credits: The American Opportunity Tax Credit (AOTC) & The Lifetime Learning Credit (LLC). Each credit has it’s own set of requirements. There could be multiple reasons regarding your eligibility of receiving one or both of the credits. Additionally, only the AOTC is partially refundable while the LLC is not a refundable credit. Some other key factors in claiming these credits are: AOTC: The credit has not been claimed for more than four tax years on an eligible student. Student must be enrolled at least half time in a degree program. The form 1098-T will reflect this. To understand other requirements and eligibility please see the IRS publication listed here regarding Education credits. https://www.irs.gov/pub/irs-pdf/p970.pdf Thank you
an important question not answered here is, if I can’t claim the AOC because of higher income, and my son is a college student with a part time job, then can I choose to not claim him as a dependent, and have him file and receive the AOC ? Reply
I was thinking that myself, however in reviewing the instructions for Line 7 of the 8863 the child won’t be eligible for the refundable credit:if they have earned income of less than half of their support, which I am guessing is the case. Reply
We claim my son as a dependent but he paid his tuition from a federal student loan that he has. Can we claim the amount that is listed on line 2 of the 1098-T that he received from his college? I assume that someone gets to claim it. Reply
Hi Craig, If you claimed your son as a dependent you can claim the amount you paid for his tuition from a federal loan if you made payments on the federal loan last tax year. You may be able to get the American Opportunity Credit worth up to $2,500 per student if he is in the first four years of college or the Lifetime Learning Credit worth up to $2,000 per return even if he took only one class, but you will only be eligible for one education credit. TurboTax will ask you simple questions and give you the education credits you’re eligible for. You may also be eligible for the Student Loan Interest Deduction of up to $2,500 if you paid your son’s student loan. Thank you, Lisa Greene-Lewis Lisa Greene-Lewis Reply
TurboTax will not allow the tuition credit on my dependent’s return because: “Your parents can claim you on their return.” Even if the parent (me) chooses not to take the dependency exemption, TurboTax will not allow the student (my son) to take the tuition credit on his return. So, even if my dependent and I both want to give up the dependent exemption, TurboTax still will not allow my son to take the tuition deduction. Is that contrary to the Reg cited above? Reply
I think this is all wrong. You can’t choose who gets to take the credit. The student cannot claim themselves as a dependent unless their parents cannot claim them. The parent cannot forego the exemption in hopes that the student will get the education credit. The title of the article suggests that it’s a choice; it isn’t. From IRS literature: If you are entitled to claim an exemption for a dependent, that dependent cannot claim a personal exemption on his or her own tax return. Reply
You are confusing two different issues. You’re correct that the dependent can’t claim a personal exemption if eligible to be claimed by their parents. However, if the parents choose not to claim the child as a dependent the child can take the education credits. In that case neither the parents or the child claim a dependency exemption for the child. This clearly spelled out in Reg Reg § 1.25A-1(f)(2), Ex 2. Reply
form 8863 says if you are under 24 years old you cannot claim the refundable part of the credit. Shouldn’t it read that if you are over 24 you cannot claim the refundable part? Reply
I think that this is a mistake in the IRS form 8863 also. Makes no sense that a student can’t claim credit if under 24. Most students are under 24 that attend college. Wonder if IRS has fixed form yet. H&R Block tax software hasn’t! Reply