Tax Credits & Deductions
The Taxpayer Relief Act of 1997 allows certain taxpayers who pay qualified tuition and related expenses to an eligible educational institution to claim an American Opportunity Credit or a Lifetime Learning Credit against their federal income tax liability.
Beginning in 2002, a Deduction for Higher Education Expenses was established. Low- and Middle-income individuals may elect to claim these tax credits or deduction for tuition expenses incurred by students pursuing college, graduate degrees or vocational training.
Note: Penn State cannot provide individual tax advice and shall not be liable for damages of any kind in connection with this information. Accordingly, you should consult your tax advisor about your specific circumstances.
List of Credits & Deductions
2016 American Opportunity Tax Credit
The 2016 American Opportunity tax credit applies to educational expenses paid during 2016. You may be eligible for a credit of up to $2,500 for the qualified tuition and related expenses you paid for each eligible student.
To qualify for the American Opportunity tax credit, eligible students must meet the following requirements:
- Enrolled in up to four years of post-secondary education.
- Enrolled in a program that leads to a degree certificate, or other recognized educational credential.
- Enrolled at least half-time in the normal full-time workload for at least one academic period during the calendar year.
- Free of any conviction for a Federal or State felony offense consisting of the possession or distribution of a controlled substance.
The American Opportunity tax credit amount is 100% of the first $2,000 plus 25% of the next $2,000 paid for each eligible student's qualified tuition and related expenses. The maximum amount of American Opportunity tax credit that can be claimed in 2016 is $2,500 for each eligible student.
2016 Lifetime Learning Tax Credit
The 2016 Lifetime Learning tax credit applies to educational expenses paid during 2016. You may be eligible to claim a credit of up to $2,000 for the total qualified tuition and related expenses paid during the tax year for all eligible students in the family. To qualify for the Lifetime Learning tax credit, eligible students must meet the following requirements:
- Enrolled in one or more classes, including undergraduate, graduate, and continuing education course work.
- Enrolled in any course of instruction to acquire or improve job skills.
The Lifetime Learning tax credit amount is 20% of the first $10,000 you paid for qualified tuition and related expenses for all eligible students in the family. There is no maximum period for which the credit can be claimed for each eligible student.
2016 Tax Deduction for Higher Education Expenses
For the tax year 2016, you could be eligible for a tax deduction for the costs of higher education. This new tax deduction allows eligible taxpayers to claim a tax deduction against their income for qualified tuition and related expenses.
The 2016 Tax Deduction for Higher Education Expenses applies to educational expenses paid during 2016. You may be eligible to deduct up to $4,000 you paid for qualified tuition and related expenses as an adjustment to your income. You can deduct up to $4,000 of qualified tuition and related expenses if your modified adjusted gross income (MAGI) is not more than $80,000 ($160,000 if you are married filing jointly). If your MAGI is larger than $80,000 (160,000), your deduction may be limited. To qualify for the Tax Deduction for Higher Education Expenses, eligible taxpayers must meet the following requirements:
- You must reduce your qualified expenses by the amount of any tax-free educational assistance you received such as scholarships, grants, employer-provided assistance, etc.
- Qualified tuition and related expenses do not include the cost of insurance, medical expenses, room and board, transportation, or similar personal living expenses. Qualified tuition and related expenses do include the information technology and activity fee.
- You cannot deduct any amount for qualified tuition and related expenses for a year if an American Opportunity or Lifetime Learning credit is claimed with respect to expenses of the individual for whom the tuition and related expenses were paid.
- You cannot use this deduction if your filing status is married filing separately.
- You cannot use this deduction if you are a nonresident alien.