Education Tax Breaks - Tax Credits, Deductions, and Savings Plans

The US tax code provides a number of benefits and tax breaks to students and to all taxpayers seeking to further their education beyond secondary school (high school).

Tax Help for Students

Student Tax Returns-Should I File as a Student?

Tax Credits for Students

Tax Deductions for Students

Tax Free Savings Accounts for Students

Other Tax Breaks and Savings for Students

Student Tax Returns - Should I File as a Student?

If you are a student, you may be required to file a tax return. Find out if you need to file a tax return.

Even if you are not required to file a tax return, you may want to file one in order to take advantage of the student tax breaks on this page. Find out how to file a student income tax return

Tax Credits for Students

You may be able to claim one of two different student tax credits on your tax return:

The American Opportunity Credit (formerly The Hope Credit)

If you are in your first four years of post-secondary school, you should learn about the valuable American Opportunity Credit.

The Lifetime Learning Credit

If you have already had four years of post-secondary education (and you do not qualify for the American Opportunity Credit), you may qualify for the Lifetime Learning Credit.

Tax Deductions for Students

Whether or not you claimed a student tax credit, you may be interested in the two available student tax deductions

Student Loan Interest Deduction

Even if you claimed a student tax credit, you can still deduct your student loan interest.

Tuition and Fees Deduction

If you did not take either student tax credit, you may be able to deduct your school tuition and fees

Important: This deduction expired on December 31, 2013, so it cannot be claimed on 2014 and later Tax Year returns.

Tax-Free Savings Accounts for Students

There are two ways to save money for education in a tax-free account:

Qualified Tuition Programs (QTPs) - 529 College Savings Plans

Anyone can save money tax-free with a Qualified Tuition Program (a 529 Savings Plan).

Coverdell Educational Savings Accounts - Coverdell ESAs

There are more restrictions than on a QTP, but a good way to save money for education is to use a Coverdell ESA.

Other Tax Breaks and Savings for Students

Tax-Free Scholarships and Grants

Money from a scholarship or grant is generally not taxable income as long as you are a candidate for a degree at a qualified educational institution AND the amounts you receive are used for tuition, fees, or other qualified educational expenses (books, supplies, equipment, and other required course materials). Any funds spent on non-required expenses, such as housing costs, are usually considered taxable income.

Tax-Free Educational Assistance from Employers (127 Plan)

Your employer can help pay your education expenses for you, even if it is not job-related. To you, this is tax-free income, so your employer should not include this income with your wages, tips, and other compensation on your W-2 form. Section 127 of the IRS tax code states that you can exclude up to $5,250 of those expenses each year. However, you cannot use any tax-free education expenses your employer pays on your behalf for any education credit or deduction.

Find more information on nontaxable employer-provided educational assistance in IRS Publication 970-Tax Benefits for Education.

Retirement Plan Funds

There is generally a hefty tax penalty for an early withdrawal of retirement funds from a Traditional IRA or Roth IRA. However, the penalty is waived if you use these funds to pay qualified education expenses for you, your spouse, your child, or your relative (grandchild, niece/nephew, etc.).

U.S. Savings Bonds

You may redeem Series EE and Series I savings bonds tax-free if the funds are used to pay qualified education expenses for you, your spouse, or your dependents. In addition, you must meet these requirements to cash your savings bonds tax-free: 

  • Your modified adjusted gross income (MAGI) is less than the amount specified for your filing status AND
  • Your filing status is not Married Filing Separately. 

The bond itself must meet the following requirements: 

  • The Series EE or Series I bond must have been issued after 1989, 
  • The bond must be in your name (as the sole owner) or in the name of both you and your spouse (as co-owners), AND
  • The owner must be at least 24 years old before the bond's issue date (printed on the front of the savings bond).

Review IRS Publication 970-Tax Benefits for Education for details on tax-free U.S. savings bonds.

Student Tax Tips and Myths

Find out common student tax myths and essential student tax tips.

Money Saving Tips for College Students

Find out helpful money saving tips for college students as well as other money saving tips for any occasion or situation.

Need help? Ask FREE Tax Questions!

Are you a current college student? efile.com offers discounts to college students. See if your school qualifies for the student discount

See what other tax deductions and tax credits may be available to you (and your family).

Use our free tax tools to help calculate taxes or determine eligibility for certain tax credits.

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