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Understand key education tax credits, deductions, eligibility criteria, and benefits to help students access the financial aid they deserve. Learn how to promote these benefits to those in need.
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Session 34 What You Need to Know About Education Tax Credits and Deductions Gregory Ford | Dec. 2013 Internal Revenue Service 2013 FSA Training Conference for Financial Aid Professionals
Partnership is Key • IRS and DOED are working together • FAFSA DRT • Reaching and serving low income and underserved • Communication and Outreach • You are a trusted resource for the students and parents you serve • Together we can reach and help more of them
The Tax Law is Complex • Because of complexity, it is difficult for students to self-identify • Result: each year money is left on the table • You can help ensure all those who qualify receive the federal tax credits and deductions they deserve and need to pay for higher education
IRS Education Credits & Deductions • A tax credit reduces the amount of income tax someone may have to pay on a dollar-for-dollar basis for qualified education expenses. • The American Opportunity Tax Credit • The Lifetime Learning Credit • A deduction reduces the amount of income that is subject to tax, which generally reduces the amount of tax someone may have to pay. • The tuition and fees deduction • There are criteria common to all three benefits
Who Qualifies? • Individuals must meet all three of the following: • Pay qualified expenses of higher education • Pay the education expenses for a qualified student • Must pay the expenses for themselves, their spouse, or for a dependent 6 6
Who Does Not Qualify? • Individuals cannot claim the credit if any of the following are true: • Files married filing separately • Is listed as a dependent on another person’s return • They or their spouse were a nonresident alien for any part of the year and did not choose to be treated as a resident alien 7 7
Funds that Qualify • Individuals do not have toreduce the amount of expenses paid by the following: • Payments for services, such as wages • A loan • A gift • An Inheritance, or • A withdrawal from student’s personal savings • Taxable scholarships or fellowships 8 8
Expenses that Do Not Qualify • Insurance • Medical expenses (including student health fees) • Room and Board • Transportation • Personal, Living, or Family Expenses • Sports, games, hobbies, and noncredit courses unless included in course of instruction 9 9
No Double Credits • One expense – One Student – One Education Credit • If the funding for the expense is tax free – You can’t claim the credit 10 10
AOTC Enhances the “Hope Credit” • Added expenses for books, supplies and equipment need for a course of study to the list of qualifying expenses • Allows the credit to be claimed for four post-secondary education years, instead of two • The credit is available to individuals with a higher adjusted gross income • Starts to phase out at $80,000 for individuals or $160,000 for married couples filing a joint return • Completely phases out at $90,000 for individuals or $180,000 for married couples filing a joint return • 40% of the credit is refundable, up to $1,000
AOTC – Who Qualifies? • In addition to basic requirements, student must: • Be pursuing an undergraduate degree or other recognized education credential • Attend at least half time for one academic period starting during 2012 • Not have felony drug conviction on record
Overview of Lifetime Learning Credit • Up to $2,000 per return • Non-refundable • Limit on MAGI • $62,000 single, head of household, or qualifying widow or widower • $124,000 married filing jointly • Available for all years of postsecondary education and for courses taken to acquire or improve job skills • Available for one or more courses • No restriction for felony drug conviction
Overview of Tuition and Fees Deduction • Maximum benefit—reduce your taxable income by up to $4,000 • Limit on MAGI • $80,000 single, head of household, or qualifying widow or widower • $160,000 married filing jointly • Student must: • Be enrolled in postsecondary education • Have high school diploma or GED • Take one or more courses • No restriction for felony drug conviction • No restriction on number of years
Did You Get All That? Not to worry – we have tools for you and the students and parents you help
Tools to Help Promote Education Benefits http://www.eitc.irs.gov/Other-Refundable-Credits/main
Students Can Find Education Benefit Information at One Convenient Location on IRS.gov
You Can Help • Use the tools on the Refundable Credit Toolkit • Subscribe to the IRS Outreach Corner and place articles in your newsletters or LISTSERV • Use our Social Media products • Link to products and tools from your websites
We Need Your Feedback eitc.program@irs.gov
