Tax Incentives for Education

The cost of postsecondary education is undoubtedly expensive and the amount only rises each year.  Along with educational saving programs and financial aid/awards, there are also attractive tax incentives that may help offset the expensive cost of a higher education.

Though the specific sets of rules and amounts vary depending on the state, the IRS has put together various programs and credits in order to help offset the cost of postsecondary education.   These incentives will either effect the parents or the student; it entirely depends on who is paying for the college expenses and if the student is a dependent or not.

There are three different tax credit opportunities—the America Opportunity Credit, the Hope Credit and the Lifetime Learning Credit.   There are also tax savvy saving and deduction plans that should not be overlooked.

The American Opportunity Credit applies to the first four years of a postsecondary education and is a modification of the Hope Credit (below).  It opens a tax credit opportunity to a broad number of tax payers including families with higher income who might owe no taxes.   If a taxpayer is eligible, it is possible to receive $2,500 per year per each student enrolled.  If the applicant owes no taxes, it is still possible to receive up to $1,000 in credit.

The Hope Credit generally applies to the education years 2008 and before and cannot be used simultaneously with the American Opportunity Credit.  The eligibility requirements to receive the Hope Credit are that the student is enrolled at least half time, are within their first two years of postsecondary education and are enrolled in a program that will eventually result in a degree or accreditation. The maximum amount per year that can be received is $1,800.  However, if the student is attending college in a Midwestern disaster area, it is possible for that student to receive up to $3,600.

The Lifetime Learning Credit broadens the possibility to receive tax credit to more people than even the American Opportunity Credit does.  This credit can help undergraduate as well as graduate students pay for their education.  Many professional courses that are meant to improve current on the job skills can be included and credited; there is not a limit on what year of study or how many years the student has been enrolled within a program.  Depending on income, taxes owed and state it is possible to receive up to $2,000 per tax return and up to $4,000 in certain Midwestern states.

If a student does not qualify for any of the above tax credits, it is possible to receive up to $4,000 in tax deductions based upon tuition and other fees.

Tax free college savings plans provide other ways to take advantage of tax incentives for education.   The most effective is a 529 plan which allows friends and relatives to put aside money as an investment for the student’s education; it will grow tax free and be used free of taxes as long as it is used for tuition, books, fees and other college expenses.  Within the 529 program, there are different plans – be sure to choose the best for your family.


 Author Bio

Robby Monk is an online marketer for BatesCarter.  BatesCarter is a full service accounting firm that provides accounting in Atlanta, North Georgia and the surrounding area.

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