Tax Considerations for Higher Education

These tax breaks may help offset the costs of college, although many of them are subject to income limitations or phase out as income rises.*

For the most current and detailed information, visit irs.gov and read Publication 970, Tax Benefits for Education.

Tax-Free Benefits provide tax-free help with education expenses for qualified students, although they may be subject to income limitations.

  • Scholarships, fellowships, etc. are usually not taxed.
  • Coverdell Education Savings Account (ESA) can be set up for beneficiaries under the age of 18.
  • Qualified Tuition Programs are sponsored by states or educational institutions.
  • Education Savings Bond interest may be tax-free.
  • Employer-provided educational assistance up to $5,250 per year may be tax-free.

Tax Credits directly reduce tax liability, but phase out as income rises.

  • Hope Scholarship Credit - May be claimed for students in their first two years of post-secondary education who are enrolled at least half time. The maximum benefit per student per tax year is $1,500.
  • Lifetime Learning Credit - Each taxpayer may claim an annual credit of up to 20% of the first $10,000 (maximum of $2,000 annually) for out-of-pocket education expenses at eligible educational institutions.

Tax Deductions lower your taxable income, but may be subject to income limits.

  • Student Loan Interest Deduction - Interest paid on qualified educational loans may be deductible, up to $2,500.
  • Tuition and Fees Deduction - Up to $4,000 may be taken for a student for whom no other education tax benefits are claimed, when other income and usage requirements are met.

Disclosures:

  • Consult a tax advisor for details.
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