Tax & Savings Options for Education
TAX CREDITS
Several tax benefits are available to help families meet the cost of postsecondary education. These tax benefits are intended to help students and their parents, as well as all working Americans, to fulfill a variety of educational objectives.
Taxpayers can claim one or, in some cases, two tax credits for expenses they pay for post-secondary education for themselves and/or their dependent children. These tax credits can directly reduce the amount of federal income tax paid. The Hope Scholarship Credit is available on a per-student basis for the first two years of post-secondary education, while the Lifetime Learning Credit applies on a tax-return basis and covers a broader time frame and range of educational courses. Education expenses paid for with tax-free grants, scholarships, and employer education assistance are not eligible for either tax credits. Education expenses paid with loans are eligible for these tax credits.
TAX INCENTIVES TO SAVE FOR COLLEGE
Through traditional IRAs, some workers can save up to $3,000 on a before-tax basis or can roll over retirement plan savings. Now two different types of accounts - a Coverdell ESA and a Roth IRA - can help people save for college expenses, and education-related withdrawals from all ESAs and IRAs will be penalty free.
OTHER REDUCTIONS OF TAXABLE INCOME
- EDUCATIONAL COST TAX DEDUCTIONS IF NOT USED ON OTHER TAX & SAVINGS
- QUALIFIED
TUITION PROGRAMS (QTP)
QTPs include state maintained plans such as Alabama's PACT Program. - STUDENT LOAN INTEREST DEDUCTION
- EMPLOYER-PROVIDED
EDUCATIONAL ASSISTANCE
TAX PROVISION AND TYPES OF EDUCATION EXPENSES ALLOWED
|
Tax
Provision
|
Tuition
& Fees |
Books
|
Room
& Board |
Purchase
Equipment |
| Hope Scholarship & Lifetime Learning Credits |
Yes
|
No
|
No
|
No
|
| Coverdell ESA, Roth IRAs and Traditional IRA's |
Yes
|
Yes
|
Yes
|
Yes
|
| Tax Deductions if not used on other tax options |
Yes
|
No
|
No
|
No
|
| Employer Education Assistance |
Yes
|
Yes
|
No
|
No
|
| Qualified Tuition Program (QTP) |
Yes
|
No
|
Yes
|
No
|
ACADEMIC LEVEL FOR TAX CREDITS
|
Tax
Credit
|
Types
of classes eligible
|
| Hope Scholarship | First two years of undergraduate (status as of January 1) |
| Lifetime Learning | Academic undergraduate, graduate/professional course work and continuing education, if to acquire or improve job skills. |
FOR MORE INFORMATION ON EDUCATIONAL TAX AND SAVINGS OPTIONS, VISIT THE FOLLOWING WEB SITES:
- Internal Revenue Service, Publication 970, Tax Benefits for Higher Education www.irs.gov/pub/irs-pdf/p970.pdf
- Internal Revenue Service, Publication 4492, Information for Taxpayers Affected by Hurricanes Katrina, Rita, and Wilma http://www.irs.gov/pub/irs-pdf/p4492.pdf
- TCRS Tax Credit Reporting Service http://tcrs.com
- For general information on TRA97 or to view/print a copy of your University of Alabama 1098-T go to www.1098T.com