Did you know that 71 percent of students that graduate from a four-year university will have some form of college debt? In fact, the average college graduate leaves with over $37,000 owed in student loans.
There’s no debate that attaining higher education is a financial burden. Since you will likely have to pay back thousands of dollars after graduation, it’s essential to look into which tax breaks the IRS can offer for college students. This step can play a major role in improving your financial standing after graduation—and keeping your student debt in check.
Tax Credits & Deductions Available to College Students
The good news is that there are a number of tax deductions and credits available to recent graduates. The credits and deductions can also extend to include current enrollees that have families with children in school.
Before you go to file, make sure you’ve double-checked to see if you qualify for the following tax breaks:
- American Opportunity Tax Credit
- Lifetime Learning Credit
- Student Loan Interest Deduction
- Earned Income Tax Credit
- Tuition and Fees Deduction
American Opportunity Tax Credit
The American Opportunity Tax Credit (commonly shortened to AOTC) provides an annual reward of $2,500 for eligible college students. In order to maintain eligibility for this credit, you or your dependent must be currently pursuing a degree and enrolled at least half-time in school. The credit is only good for four years, so students that take longer than that to earn a degree are capped at four years.
Students must also earn less than $80,000 per year (or $160,000 for couples) to qualify for the AOTC. This credit can potentially reduce tax liability up to 40 percent for low-income earners. You can apply by completing Form 8863 and attaching it to Form 1040—or Form 1040A.
Lifetime Learning Credit
The Lifetime Learning Credit (LLC) provides up to $2,000 per year for qualified expenses related to higher education, including tuition and fees. The Lifetime Learning Credit is not refundable like the AOTC. Instead, it reduces tax liability (potentially to zero) depending on earned income.
There is no limit to the number of years you can utilize LLC. However, in order to prove eligibility, you or a dependent must be enrolled in an approved university or college. You must also be enrolled in at least one class—and your income cannot exceed $65,000 (or $131,000 if married and filing jointly).
Student Loan Interest Deduction
If you are a student (or parent of a student) that made payments on a qualifying student loan this past year, then make sure you apply for the student loan interest deduction. This incentive allows you to deduct up to $2,500 of the interest you paid over the course of the year come tax season. The deduction is only available to single or married filing jointly status. There are also income limit restrictions, which you can learn more about here.
Earned Income Tax Credit
The Earned Income Tax Credit (EITC) is not solely limited to students—though many in this demographic apply for it. EITC is reserved primarily for low to moderate earners that need some additional financial support to cover tuition costs.
It benefits families with multiple qualifying children the most. However, recent graduates that are not earning the income they would have hoped directly out of college can also benefit.
EITC is based on your filing status and income. The amount you can receive in savings also varies significantly from $500 to nearly $6,500. EITC is comparable to the American Opportunity Tax Credit in that you also get refundable funds back from any leftover savings.
Tuition and Fees Deduction
Students are entitled to deduct up to $4,000 on a tax return for tuition and fees. This form of deduction is comparable to LLC because it’s not a refundable tax credit. However, it can reduce your tax liability to zero. Tuition and fees deductions are limited to those who earn under $80,000 per year (single filers) or $160,000 (married filing jointly).
Levy & Tax Associates Provides Tax Help For College Students
College is expensive; we want to help reduce your tax burden and try to get you back a refund. Contact Levy & Associates for an initial, free consultation to see how we can help. Just call in at 800-TAX-LEVY—or visit us online at www.levytaxhelp.com.