Earn Taxes

Grab Extra (Tax) Credits and Deductions for Education Expenses on Your 2019 Tax Return

Maggie Klokkenga, CPA, CFP®  |  February 27, 2020

How to account for common education items on your tax return.

If you had education-related expenses — student loans, tuition, enrollment fees — or received a hand through scholarships or grants to cover some costs, your stack of tax-related paperwork is probably a little taller this year.  

Here’s what to do with the information on those 1098-Es and 1098-Ts to squeeze out a bigger tax refund. 

Student loan interest deduction

If you made student loan payments in 2019, tax season is your opportunity to get a little relief. Although it may pale in comparison to the total payments you made on your loans last year, taxpayers who qualify can deduct up to $2,500 in student loan interest on your income tax return.

The student loan interest deduction is an above-the-line deduction, which means that it is a deduction before you arrive at your adjusted gross income (AGI). Even if you do not itemize deductions, you can still deduct it.  

Eligibility: The student loan interest deduction is only available if your modified adjusted gross income (MAGI) — which is typically your adjusted gross income less any student loan interest deduction — isn’t too high. For 2019 if your MAGI is greater than $85,000 (if filing single) or $170,000 (if you’re married filing jointly), unfortunately you don’t qualify for the deduction.

How to get it: You’ll receive Form 1098-E for each account in which you held a student loan. Add up the amounts from Box 1 and include the total deduction on your tax return. 

Tuition and fees credits 

The IRS also provides tax credits on education-related expenses. This one’s for you if you paid tuition, fees, course materials and anything required for a student to attend or be enrolled at an eligible educational institution. FYI: “An eligible educational institution” isn’t just a four-year college or university, either. Vocational schools and other post-secondary education institutions, such as community college, also count. 

There are two education credits: 

  • The American Opportunity Tax Credit: A partially refundable tax credit up to $2,500 annually for four years.
  • The Lifetime Learning Credit: A non-refundable tax credit up to $2,000 annually with no time limit. 

Eligibility: Depending on your MAGI, you may be eligible for an education tax credit or the tuition and fees deduction. Word to the wise: if you are claiming a dependent, and that dependent paid his/her own tuition, YOU still get to claim the education tax credit. (If your dependent says that seems unfair, tell them to take it up with your local Congressperson!)

How to get it: You’ll receive Form 1098-T from the eligible educational institution where you are paying tuition. Enter the tuition payments (from Box 1) on your return.

If you took out student loans to pay for tuition, you better make sure that you’re able to get any deductions or credits that you can. 

Tuition and fees deductions

Like the student loan interest deduction, the tuition and fees deduction is an above-the-line deduction of up to $4,000. Although this education-related tax break was set to expire, The Taxpayer Certainty and Disaster Tax Relief Act of 2019 extended it through Dec. 31, 2020. 

Here’s the catch: You’re not allowed to claim both the tuition and fees deduction and one of the two education tax credits outlined above. Your tax preparer or tax preparation software typically optimizes to see which is more advantageous for you (as in gets you a bigger refund).

Scholarships and fellowship grants

Along with tuition payments you made, scholarships and grants you received are also reported on Form 1098-T. Whether or not these will be taxed is based on how you (or your dependent) used the money.

If it went to pay for qualified education expenses (tuition, books, and other supplies needed for a specific course), your scholarship or fellowship grant is not taxable.

It’s a different story if there was any work requirement to receive the grant. For example, let’s say that Tony Stark received a $5,000 fellowship grant that required him to teach part-time. The university that awarded the grant considers $1,500 of it as income for teaching for which he receives a W-2. As he prepares his taxes, Tony is only able to exclude potentially up to $3,500 of the grant from his taxable income.

Make sure you take all the breaks you’re allowed

Optimizing your education deductions and credits usually means delving a little deeper into the details rather than simply entering the info from a tax form from your university, 

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