Two years after the world learned to use “quarantine,” “pivot,” “Zoom meetings,” and other words associated with adapting to the pandemic, some important terms that many students, families, and educators may not know much about — but have been around for a long time — are “tax credits” and, more specifically, “education tax credits.” Typically, words such as “taxes” and “IRS” are avoided unless speaking directly to a tax professional, but bringing awareness of the terms is crucial to helping families and educators learn about the benefits they offer.
Secondary-level benefits: If you are a K-12 teacher, instructor, school counselor, principal, or teacher’s aide you may be eligible to deduct some qualified expenses incurred during the tax year. The qualified expenses can range from professional development courses to supplemental materials for the classroom. Because of COVID-19, you may also be eligible to deduct some pandemic-related protective equipment. The total deduction can be up to $250 or, in specific cases, up to $500. Visit the IRS website to learn more.
Postsecondary-level benefits: We all know that the cost of higher education in the United States is expensive, and the assistance available to students is linked to tax filings. Students wanting to attend postsecondary institutions can submit the Free Application for Federal Student Aid (FAFSA) opening annually on Oct. 1. The FAFSA requires tax return information filled two years prior in order for institutions to evaluate the amount of PELL Grant, Direct Subsidized or Unsubsidized Loans, state financial aid, and, in some cases, institutional scholarship dollars available to the student. Filing your taxes on time will reduce the time an institution takes to issue a financial aid award letter.
Tax Credits and Deductions
How can students and families offset the cost of tuition and other expenses related to attending college?
The IRS provides three benefits—two tax credits and a Student Loan Interest Deduction—to help offset the cost of higher education. The first one is the American Opportunity Tax Credit (AOTC), which provides a maximum credit of $2,500 per eligible student. The second one is the Lifetime Learning Credit (LLC), which allows filers to claim a credit of up to $2,000 per return. This IRS webpage explains and helps you compare both benefits. The third IRS benefit designed to offset the cost of college is the Student Loan Interest Deduction and it allows taxpayers to deduct the interest paid on a student loan. Those benefits are governed by adjusted gross income levels.
If you’d like to know if you are eligible to claim an education credit, check the Interactive Tax Assistant website.
More awareness among students and families is needed to help alleviate the burden of the cost of postsecondary education. As NACAC Past President Jayne Caflin Fonash clearly recommended in her testimony to the Senate Finance Committee in 2014, schools and colleges must share information about education tax credits and other benefits more broadly, particularly as students navigate the enrollment process and learn about payment deadlines.
This content is not a replacement for a tax advice. We recommend speaking with a tax return preparer. Here are some tips on how to find a trusted tax professional.
Tiziana G. Marchante is NACAC’s Project Manager, Content Strategy & Outreach. You can reach her at email@example.com.