Tax Benefits for Students
Rutgers acknowledges that the laws and regulations governing tax benefits for education are complex. You may wish to consult a professional tax advisor in order to determine your eligibility/maximize your tax benefit and/or refer to the IRS Publication 970, Tax Benefits for Education. The information presented below is not intended as legal or tax advice. In addition to IRS Publication 970, an explanation of the tuition and fees deduction as well as tax credits is included in the instructions for completing individual income tax returns IRS Form 1040, 1040A, 8917, and 8863. The IRS is available to answer your tax questions at 1-800-829-1040.
Tax Credits
The education tax credits are based on the amount of qualified tuition and fees actually paid by the taxpayer or the student claimed as a dependent on the taxpayer’s tax return. Payments do not include scholarships, fellowships, financial aid grants (e.g., Federal Pell grants and New Jersey Aid grants, Scarlet Promise Grants, and Garden State Guarantee Grants), or non-taxable tuition remission benefits received by the student. The amount paid, however, would include amounts borrowed by the student (e.g., Perkins student loans and Federal Direct student loans) to pay for qualified tuition and fees.
IRS regulations provide rules for allocating scholarship, fellowship, and financial aid grants among qualified and non-qualified expenses. Generally, a non-taxable scholarship, fellowship, or financial aid grant reduces the amount of qualified tuition and related expenses that a taxpayer may otherwise include when claiming education credit.
Accordion Content
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For 2023, you may be able to claim a credit of up to $2,500 for adjusted qualified education expenses paid for each student who qualifies for the American opportunity credit. Your allowable American opportunity credit may be limited by the amount of your income. Also, the non-refundable part of the credit may be limited by the amount of your tax.
The credit applies to tuition and related expenses paid by the taxpayer during the tax year on behalf of the taxpayer, the taxpayer’s spouse, or the taxpayer’s dependents. To be eligible the student must be enrolled at least half-time for at least one academic period that begins during 2023 (or the first 3 months of 2024 if the qualified expenses were paid in 2023.
Qualified Tuition and Related Expenses
For purposes of the American opportunity credit, qualified education expenses are tuition and certain related expenses required for enrollment or attendance at an eligible educational institution.
Qualified education expenses don't include amounts paid for:
• Insurance;
• Medical expenses (including student health fees);
• Room and board;
• Transportation; or
• Similar personal, living, or family expenses.
Income Limitations
The amount of your American opportunity credit is phased out (gradually reduced) if your modified adjusted gross income (MAGI) is between $80,000 and $90,000 ($160,000 and $180,000 if you file a joint return). You can't claim an American opportunity credit if your MAGI is $90,000 or more ($180,000 or more if you file a joint return).
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For the tax year, you may be able to claim a lifetime learning credit of up to $2,000 for qualified education expenses paid for all eligible students. There is no limit on the number of years the lifetime learning credit can be claimed for each student.
The lifetime learning credit is based on qualified education expenses you pay for yourself, your spouse, or a dependent you claim on your tax return. Generally, the credit is allowed for qualified education expenses paid in 2023 for an academic period beginning in 2023 or in the first 3 months of 2024.
Qualified Tuition and Related Expenses
For purposes of the lifetime learning credit, qualified education expenses are tuition and certain related expenses required for enrollment in a course at an eligible educational institution. The course must be either part of a post-secondary degree program or taken by the student to acquire or improve job skills.
Qualified education expenses don't include amounts paid for:
• Insurance;
• Medical expenses (including student health fees);
• Room and board;
• Transportation; or
• Similar personal, living, or family expenses.
Income Limitations
The amount of your lifetime learning credit is gradually reduced (phased out) if your MAGI is between $80,000 and $90,000 ($160,000 and $180,000 if you file a joint return). You can't claim a lifetime learning credit if your MAGI is $90,000 or more ($180,000 or more if you file a joint return).
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The amount of the American opportunity credit (per eligible student) is the sum of:
1. 100% of the first $2,000 of qualified education expenses you paid for the eligible student, and
2. 25% of the next $2,000 of qualified education expenses you paid for that student.
The maximum amount of American opportunity credit you can claim in 2023 is $2,500 multiplied by the number of eligible students. You can claim the full $2,500 for each eligible student for whom you paid at least $4,000 of adjusted qualified education expenses. However, the credit may be reduced based on your MAGI.
The amount of the lifetime learning credit is 20% of the first $10,000 of qualified education expenses you paid for all eligible students. The maximum amount of lifetime learning credit you can claim for 2023 is $2,000 (20% × $10,000). However, that amount may be reduced based on your MAGI.