NEWARK, Del.--(BUSINESS WIRE)--Tax season is already in full swing, and Sallie Mae, the nation’s saving, planning, and paying for college company, recommends students and families investigate often-overlooked higher education tax credits and deductions. Education tax credits and deductions are available to help recoup the costs of college expenses, such as tuition, fees, or interest accrued on student loans. The key is to understand what’s available, determine eligibility, and take action to ensure no money is left on the table.
In fact, according to the College Board, the average family saved about $1,290 in education tax credits and deductions in 2015-16. However, “How America Pays for College,” an annual study conducted by Sallie Mae and Ipsos, reports that fewer than half of American families took advantage of tax credits or deductions to make college affordable in 2015-16.
“A college education is a major investment, so when there are opportunities to put money back in your pocket, it’s worth doing a little homework,” said Martha Holler, senior vice president, Sallie Mae. “Chances are, if you’ve covered tuition expenses or paid interest on a student loan, you may be eligible for a credit or deduction. It’s just a matter of getting smart about what’s available and determining if you qualify.”
Sallie Mae’s easy-to-follow flowchart can help students and families determine eligibility for tax credits and deductions. Here’s a look at what’s available:
- Student Loan Interest Deduction. Student loan borrowers may be eligible for up to $2,500 in student loan interest deductions to offset income subject to tax. Available for both federal and eligible private student loans in repayment, single filers with a modified adjusted gross income of less than $80,000 and those with a joint modified adjusted gross income less than $160,000 qualify for this deduction.
- Tuition and Fees Deduction. Students and families can claim up to $4,000 in expenses for higher education to offset income subject to tax. This deduction is taken as an adjustment to income and an individual does not need to itemize other deductions. Individuals with a modified adjusted gross income of up to $80,000 and those with a joint modified adjusted gross income of up to $160,000 can file for this deduction. Families can claim only one credit for the same student in any one year, and cannot take both this deduction and a credit in the same year.
- The American Opportunity Credit. Eligible taxpayers may qualify for a maximum annual credit of $2,500 per student for the first four years of higher education. To be eligible, a student must be enrolled at least half-time in a degree or other recognized educational credential. The credit can be applied to course-related books and supplies in addition to tuition and fees. A single taxpayer can have a 2016 income of up to $80,000 to receive the full credit, or a partial credit is available for an income amounting to $90,000. Married filers with an adjusted gross income up to $160,000 are eligible for the full credit and up to $180,000 for a partial credit.
- The Lifetime Learning Credit. Eligible taxpayers may qualify for up to $2,000 per tax return to help pay for undergraduate, graduate, and professional degree courses – including courses designed to improve job skills. There is no limit on the number of years an individual can claim the Lifetime Learning Credit. The Lifetime Learning Credit is available to taxpayers with modified adjusted gross income of less than $65,000, or $131,000 if filing jointly. The credit is reduced gradually for single filers making more than $55,000, and for joint filers making more than $111,000.
Additional information on education tax credits and deductions is available through the Internal Revenue Service Publication 970, Tax Benefits for Education, or through a personal tax advisor1.
When it comes to paying for college, Sallie Mae recommends families follow its 1-2-3 approach: first, maximize money that does not need to be repaid, such as scholarships and grants; second, explore federal student loans; and, third, consider a responsible private education loan.
|This information is not meant to provide tax advice. Whether filing jointly or separately, consult with a tax advisor for education tax credit and deduction eligibility.|
Sallie Mae (Nasdaq: SLM) is the nation’s saving, planning, and paying for college company. Whether college is a long way off or just around the corner, Sallie Mae offers products that promote responsible personal finance including private education loans, Upromise rewards, scholarship search, college financial planning tools, and online retail banking. Learn more at SallieMae.com. Commonly known as Sallie Mae, SLM Corporation and its subsidiaries are not sponsored by or agencies of the United States of America.