Tax Reminders for College Students

It’s That Time Again

With the summer nearly over, many a college student is in the process of getting their bags packed for a new semester at university. Others may be working and returning to college for career purposes. But one thing is for certain – the rising cost of getting an education is making everyone anxious. So, it’s wise to get a handle on the IRS tax benefits and implications of going off to the hallowed halls of college.

Here are just a few items to remember:

1. Don’t Forget Educational Tax Credits – The IRS allows for credits on your income tax through the American Opportunity Credit or Lifetime Learning Credit, but the credits are based on income levels. There’s also a deduction for tuition and fees, but you cannot take the education credit and a deduction for tuition and fees for the same student in the same year. Once you determine whether or not you qualify for both, then you can determine which one would be better to take. Call the IRS and your tax advisor for help and clarification. The credits or deduction can be taken for yourself, your spouse or your dependent. But, be warned – you can’t claim this deduction or credit if your filing status is married filing separately or if another person can claim an exemption for you as a dependent on his or her tax return.

2. Understanding Scholarships and Fellowships – If you or your child is fortunate enough to receive a scholarship or fellowship for higher education (undergraduate and graduate), there are certainly tax issues to consider. According to the IRS, scholarship and fellowship money is tax free if you are a degree candidate at an eligible educational institution and the money is used for qualified education expenses. Qualified expenses are tuition and fees, books, supplies and equipment required for a class. Surprisingly, qualified expenses for scholarships and fellowships DO NOT include room and board.

3. Understanding the 529 College Savings Plan - It’s more than likely if you’ve socked away money for college, it’s in a popular 529-college savings plan. The obvious benefit of a 529 plan is the ability to have tax-free withdrawals of the money, if and when it is applied to recognized college expenses.

4. Employer Educational Benefits - If your job pays you to go back to school (undergrad or grad), there are a number of IRS rules to remember and quite a few stipulations on the money. Qualifying benefits are generally not considered as wages, as long as they do not exceed $5,250 each year.

5. Work-Related Educational Expenses – If you are an employee and can itemize your deductions, you might be able to deduct work-related education expenses to a degree. Expenses should be greater than 2 percent of your adjusted gross income. For the self-employed, you might be able to deduct qualified work-related education costs from your self-employment income. The tuition and fees deduction and education credits mentioned in #1 above may also apply for employees and the self-employed, but check with the IRS for info on the requirements.

6. Student Loan Interest Deduction - The IRS does allow for a deduction for interest on your student loan, but there are income caps and other stipulations on this deduction.

These are just a handful of some of the things to consider. Contact the IRS and a reputable tax advisor for additional, complete and more detailed information on tax credits, deductions, and tax implications related to college savings and expenses for you, your spouse or child.

Advertisement