Tuition Tax Deduction: Everything You Need to Know to File in 2023

Whether you’re a parent with a child in college or someone paying for your own education, you should know that you may be eligible for the tuition tax deduction when you file your taxes.

Because college tuition represents a large out-of-pocket expense, it’s a relief to know you can get some of that money back from the government.

At Addition Financial, we often have members ask us whether they qualify for the tuition tax deduction. Here’s what you need to know to file in 2023.

What is the Tuition Tax Deduction?

The Tuition and Fees Tax Deduction is a deduction that’s available to people who pay “qualified educational expenses for higher education” for themselves, a spouse, or a dependent. You can qualify for the tax deduction unless:

• Your filing status is married filing separately
• You can be claimed as a dependent on somebody else’s tax return
• Your modified adjusted gross income, or MAGI, is more than $80,000 if filing singly or $160,000 if married and filing a joint return
• You were a nonresident alien for part of the year and chose not to be treated as a resident alien for tax purposes
• You’re already claiming an education credit for expenses of the student for whom you paid the qualified educational expenses

The Tuition and Fees Tax Deduction can allow you to reduce your taxable income by as much as $4,000 per year.

It is important to note that the Tuition and Fees Tax Deduction may not be taken if you are taking one of the following education tax credits:

• American Opportunity Tax Credit
• Lifetime Learning Tax Credit

The income requirements for the American Opportunity Tax Credit is the same as for the Tuition and Fees Tax Deduction. The Lifetime Learning Tax Credit has a cap of $52,000 for people filing a single return and $104,000 for those married and filing a joint return.

How to Calculate Your Tuition Tax Deduction

To calculate your Tuition and Fees Tax Deduction, you will need to use IRS form 8917. To complete the form, you will need:

• The total amount paid in tuition and other eligible expenses, including tuition, books, supplies used in the course of education, and non-academic fees such as student activity fees or athletics fees. You may not include room and board or personal expenses. You can find a full explanation of what qualifies on the IRS form here.
• Your completed 1040 or 1040A tax form

You may include qualified education expenses for all college students in your family. If your final number, after subtracting your qualified expenses from your adjusted gross income, is more than $80,000 or $160,000 based on your filing status, you are not eligible for the Tuition and Fees Tax Deduction.

From there, you’ll determine the amount of your deduction as follows:

• If your Modified Adjusted Gross Income is more than $65,000, you qualify for a $2,000 tax deduction
• If your Modified Adjusted Gross Income is less than $65,000, you qualify for a $4,000 tax deduction

It’s a simple calculation. If you qualify, you’ll attach form 8917 to your tax return and include the deduction on your itemized list.

Should You Take the Tuition and Fees Tax Deduction?

Earlier, we mentioned that you cannot take the Tuition and Fees Tax Deduction if you plan to take an education tax credit. Now, let’s talk about which one you should take.

The short answer is that you should take whichever deduction or credit is going to save you the most money on your taxes. Here’s what you need to know.

First, the American Opportunity Tax Credit is $2,500 per year and may be taken for more than one student. By contrast, the Lifetime Learning Tax Credit is $2,000 and may be taken for only one student.

Let’s look at an example. Imagine a family that has a MAGI of $70,000 with two students in college full time. Provided they qualify, they’d be better off taking the American Opportunity Tax Credit than the Tuition and Fees Tax Deduction. That’s because they’d get a $5,000 tax credit with the former and only a $4,000 deduction with the latter.

You should plan on doing the math for all of your options to decide which is best for you. The IRS clearly states on their website that you may choose the deduction or credit that results in the lowest tax bill for you and your family. If you’re not sure which credit or deduction to take, you may want to consult an accountant or tax attorney.

If you qualify to take it, the Tuition and Fees Tax Deduction can reduce your taxable income by up to $4,000 and lessen the burden of paying for college.

To learn about Addition Financial’s flexible student loan options, please click here.