College-Related Federal Tax Benefits
The U.S. Internal Revenue Service offers the following credits, deductions, and other tax benefits to families with individuals enrolled in, saving for, or paying off college:
American Opportunity Tax Credit
Credits 100% of a student's first $2,500 in tuition, fees, and course materials and 25% of the next $2,000. To check eligibility go to www.textbookaid.org or read more on the Internal Revenue Service Web site.
Up to $2,500/yr. for first four years of college, including expenditures for course materials
Lifetime Learning credit
Up to $2,000/yr.
Student loan interest deduction
Up to $2,500/yr. for life of loan
Student loan cancellations and repayment assistance
Some loan forgiveness programs have tax-free status, so the IRS won't count the loan forgiveness award as taxable income.
Tuition and fees deduction
Up to $4,000/yr.
Coverdell Education Savings Account (ESA)
Can contribute up to $2,000/yr. until the age of 18
Qualified Tuition Programs ("529 plans")
Can contribute up to the amount of qualified education expenses
Education Exception to Additional Tax on Early IRA Distributions
Can take a distribution from your IRA before age 59 1/2 without having to pay 10% penalty if money is used for qualified education expenses
Education savings bond program
Qualified U.S. savings bonds can be cashed without including the interest from the bonds as taxable income if the bond is used to pay for qualified education expenses
Employer-provided educational assistance
Employers can exclude up to $5,250 of the educational assistance each year from the employee's taxable income
For more information about these tax benefits, review the IRS's most recent Publication 970: Tax Benefits for Education at IRS.gov.