Tax Breaks Students (and Parents) Can Claim in 2022
You’ve heard about writing off your internet bill as a business expense — but can it also count as an education expense? We cover the answer to this question and many more.
As virtual learning becomes more prevalent after the pandemic, many students and parents are wondering if there are any new tax benefits for education to accommodate this new learn-from-home environment.
Here’s an updated look at what the IRS considers qualified expenses for education credits in 2022, and what other tax breaks are available for those investing in higher education.
What education tax credits are available for college students?
There are two higher education tax credits for students in tax year 2021: the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). Both credits can be claimed using Form 8863.
There are different eligibility requirements for each credit, but both require the purchase of qualified education expenses for an eligible student enrolled at an eligible educational institution.
We put a handy table together below to help you compare both credits.
| American Opportunity Credit | Lifetime Learning Credit | |
|
Who can claim it |
Undergraduate students or their parents (if the student is a dependent) | Anyone taking higher education classes (undergrads, graduate students, vocational students, etc.) |
| Max credit amount | Up to $2,500 per eligible student | Up to $2,000 per return – You can claim 20 percent of the first $10,000 spent on tuition and fees during the tax year |
| Modified adjusted gross income (MAGI) limits for credit | Joint filers: $180,000 Other filers (except married filing separately): $90,000 | Joint filers: $138,000 Other filers (except married filing separately): $69,000 |
| Course and enrollment requirements | Must be enrolled at least half-time in an undergraduate program for a degree or education credential | Must be enrolled in at least one course and does not need to be pursuing a degree or educational credential |
| How often you can claim it | Only available four tax years per eligible student | Available for an unlimited number of tax years |
| Refundable? | Yes – up to 40% refundable even if you have no tax liability | Nonrefundable |
Who claims these credits — the student or the parent?
The student or the parent(s) can claim the AOTC or the LLC — whoever pays for the schooling. Students can only claim the credit if they are not considered dependents on someone else’s return.
What are qualified education expenses?
American Opportunity Credit qualified higher education expenses:
- Tuition and fees required for the student’s enrollment
- Course materials such as books, supplies, and equipment the student needs to complete their course of study (even if not purchased from the educational institution directly)
Lifetime Learning Credit qualified higher education expenses:
- Tuition and fees required for the student’s enrollment
- Course materials if the school requires these items for enrollment or attendance, and they are purchased from the educational institution
What costs are NOT considered qualified education expenses?
Personal expenses are not qualified education expenses. Some examples of what the IRS considers personal expenses are: room and board, insurance, medical expenses, student health fees, transportation, and other similar personal, living, or family expenses.
You can claim the following expenses only if they are part of your degree program (for the LLC) or help you obtain necessary job skills:
- Noncredit courses
- Courses involving sports, hobbies, or games
Can I deduct my internet bill as an education expense if all my classes are online?
The IRS generally considers the internet a personal, living, or family expense, meaning internet costs are unfortunately not a qualified education expense at this time.
The only exception to this rule is if your internet service is paid directly to the school or educational institution. If so, your internet costs could be considered a fee required for enrollment and covered as a qualified education expense.
What about my computer, is that a qualified expense for a tax break?
Your computer may be considered a qualifying education expense if it’s required for your enrollment or attendance at the educational institution.
Can I claim these tax benefits even if I paid for my expenses with student loans?
Yes, you can claim the American Opportunity Credit or the Lifetime Learning Credit even if you paid for qualified expenses with student loans.
Can I claim the AOTC or LLC if I received financial aid?
Yep! You can still qualify for an education tax credit if you received tax-free financial aid such as a Pell grant or scholarship, as long as you still paid for qualified expenses out of pocket. Just make sure you reduce your qualified expenses by the amount of financial aid you received.
For example, let’s say you had $10,000 in qualified education expenses, but you also received a $5,000 Pell grant and a $3,000 scholarship. In this case, you could claim a $2,000 American Opportunity Credit on your tax return or a $400 Lifetime Learning Credit.
I meet the requirements for the American Opportunity Credit and the Lifetime Learning Credit. Can I claim both credits?
You cannot claim the American Opportunity Credit and the Lifetime Learning Credit on the same tax return. If you qualify for both credits, the AOTC is typically more valuable because it is partially refundable and covers more qualified expenses than the LLC.
Can I still take the student loan interest deduction?
Yes, you can typically deduct interest paid on qualifying student loans. The best part? You don’t need to itemize to claim this deduction.
The amount of interest you can deduct is $2,500 or the amount of interest you actually paid during the tax year — whichever is less. If you paid $600 or more in student loan interest during the year, you’d receive Form 1098-E from your loan servicer, which will tell you the total amount you paid.
I’m a parent of a student. Can I take the student loan interest deduction?
Parents can take the student loan interest deduction, provided their filing status is not married filing separately. Parents also must meet the income requirements (up to $170,000 MAGI for joint married filers and up to $85,000 MAGI for other filers) and must have used the loan to pay for their dependent’s education expenses.
What happened to the college tuition and fees deduction?
The tuition and fees deduction expired on Dec. 31, 2020. Unfortunately, this deduction is not available to taxpayers filing their 2021 income tax returns.
Tax benefits for students and parents
When you e-file with TaxAct®, we’ll ask you simple questions to identify which educational tax breaks you could qualify for as a student or a parent. Based on your answers, we’ll guide you through the filing process, provide you with the necessary tax forms, and help you reap the tax benefits you deserve!
This article is for informational purposes only and not legal or financial advice.
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