Tax Benefits for Education

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Paying for college can add up to big savings when filing your federal tax returns. There are tax credits, deductions and advantages for the taking. A tax credit reduces the amount you may have to pay in federal taxes, while a deduction reduces the amount of your annual income that is subject to tax.

The Hope Credit

Through the Hope Credit, you may be able to claim a tax credit of up to $1,800 for qualifying education expenses, for a qualifying family member who is attending an eligible school. Most schools are eligible; please check with your school to confirm.

  • You can claim 100% of the first $1,200 of your out-of-pocket educational expenses for each student, plus 50% of the next $1,200
  • The student must be in the first or second year of a program pursuing an undergraduate degree or other recognized education credential and enrolled at least half time
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The Lifetime Learning Credit

Through the Lifetime Learning Credit, you may be able to claim a tax credit of up to $2,000 (20% of the first $10,000) per tax return. This credit is calculated per family, not per student.

The maximum credit is the same, no matter how many family members are in school. You can claim this credit at any time during a student's education at an eligible school. The student needs only to be enrolled in one course. Most schools are eligible; please check with your school to confirm.

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Student Loan Interest Deduction

If you took out student loans and paid interest on these loans, up to $2,500 of the interest paid may be used as a tax deduction. This deduction will reduce your total income amount that is subject to taxation by the federal government.

Even if you don't itemize deductions when you file a tax return – that is, you opt to take the standard deduction – you can still use this interest deduction to reduce your taxes.

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Tax-free Treatment of Canceled/Forgiven Student Loans

Generally, if you are responsible for making loan payments and the loan is canceled (forgiven), you must include the amount that was forgiven in your gross income for tax purposes. However, if your student loan is canceled, you may not have to include any amount in income.

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Tuition and Fees Deduction

You may be able to deduct qualified tuition and related expenses paid during the year for yourself, your spouse or a dependent. Qualified expenses are those that must be paid to the institution as a condition of enrollment or attendance. These can include tuition for classes; expenses for course-related books, supplies and equipment; and student activity fees.

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Early IRA Withdrawals

Generally, if you make withdrawals from your IRA (individual retirement arrangement) before you reach age 59 1/2, you must pay a 10% additional tax on the early withdrawal. This applies to any IRA you own, whether it is a traditional IRA (including a SEP-IRA), a Roth IRA or a SIMPLE IRA. However, you can make withdrawals from your IRAs for qualified higher education expenses for yourself, your spouse, or you or your spouse’s children or grandchildren without having to pay the 10% additional tax.

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Education Savings Bond Program

You may be able to cash in series EE U.S. savings bonds issued after 1989, or series I bonds, without having to include some or all of the interest earned on the bonds in your income.

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The information contained in this section is from IRS Publication 970: Tax Credits for Education. PNC does not provide tax advice and makes no representation or warranty as to the accuracy of the information. Please consult your tax advisor for tax advice matters contained in this section.

For more information, visit irs.gov or call 1-800-829-1040.

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