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), 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.
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The tuition and fees deduction allows taxpayers to deduct up to $4,000 per family for the cost of qualified tuition and fees paid to a qualified educational institution for yourself, your spouse, or your dependent(s). The deduction is available through 2016 and is allowed even if you do not itemize your deductions on Schedule A of Form 1040.
The tuition and fees deduction reduces taxable income as an "above the line" deduction, whereas the American Opportunity tax credit and Lifetime Learning tax credit directly offset income taxes. If you elect to use the tuition and fees deduction, you are not able to also claim the American Opportunity or Lifetime Learning tax credits.Qualified Tuition and Related Expenses
Qualified tuition and related expenses for the tuition and fees deduction are defined as the tuition and fees required for the enrollment or attendance of the taxpayer, the taxpayer’s spouse, or the taxpayer’s dependents at an eligible educational institution.
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The American Opportunity tax credit permanently replaces the Hope tax credit and enables a taxpayer to claim a tax credit of up to $2,500 per student for the cost of qualified tuition and related expenses pertaining to the first four years of post-secondary education at an eligible educational institution.
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 in an undergraduate degree program and carry at least one-half the normal full-time workload (i.e., six credits per semester) for the course of study that the student is pursuing in any academic period during the tax year.
Qualified Tuition and Related Expenses
Qualified tuition and related expenses for the American Opportunity tax credit are defined as tuition and fees required for the enrollment or attendance of the taxpayer, the taxpayer’s spouse, or the taxpayer’s dependents at an eligible educational institution for courses of instruction. The qualified tuition and related expenses definition has been expanded to include expenditures for “course materials,” i.e., books, supplies, and equipment needed for a course of study.
The following are not considered qualified tuition and related expenses:
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Amounts paid for any course or other education involving sports, games, or hobbies (unless the course or other education is part of the student’s degree program).
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Charges and fees associated with room, board, insurance, transportation, and similar personal, living, or family expenses.
Income Limitations
The income limitations are different for each education tax benefit. A tuition and fees deduction up to $4,000 is available if your adjusted gross income does not exceed $80,000 (single taxpayers) or $160,000 (married, filing jointly).
The American Opportunity tax credit is available to single taxpayers with an adjusted gross income of $80,000 or less and married taxpayers filing joint returns of $160,000 or less. A proportional phaseout takes place for single taxpayers with incomes between $80,000 and $90,000 and married taxpayers with incomes between $160,000 and $180,000. Married taxpayers must file a joint return in order to claim the tax credit. -
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The Lifetime Learning tax credit is more broadly applicable to any level of post-secondary education and enables a taxpayer to claim a tax credit of up to $2,000 per family for the cost of qualified 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. Qualified tuition and fees include the cost of any course of instruction (e.g., undergraduate, graduate, and continuing education) taken at an eligible educational institution in order to acquire or improve job skills.
Qualified Tuition and Related Expenses
Qualified tuition and related expenses for the Lifetime Learning tax credit are defined as tuition and fees required for the enrollment or attendance of the taxpayer, the taxpayer’s spouse, or the taxpayer’s dependents at an eligible educational institution for courses of instruction.
The following are not considered qualified tuition and related expenses:
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Amounts paid for any course or other education involving sports, games, or hobbies (unless the course or other education is part of the student’s degree program).
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Charges and fees associated with room, board, insurance, transportation, and similar personal, living, or family expenses.
Based on the tax law, it appears that the following tuition and fees imposed by the university would qualify for each tax benefit: New Jersey tuition, non-resident tuition, College Fee, Computer Fee, Student Resource Fee, Commuter Fee, Orientation Fee, and course-specific fees.
Based on the university’s understanding of the tax law, the following university-imposed fees would not qualify for the tax benefits: housing, dining, Knight Express charges, NJPIRG fees, Targum fees, parking fees, partial payment plan fees.
Income Limitations
The income limitations are different for each education tax benefit. A tuition and fees deduction up to $4,000 is available if your adjusted gross income does not exceed $80,000 (single taxpayers) or $160,000 (married, filing jointly).
The Lifetime Learning tax credit is available to single taxpayers with an adjusted gross income of $55,000 or less and married taxpayers filing joint returns of $110,000 or less. A proportional phaseout takes place for single taxpayers with incomes between $55,000 and $65,000 and married taxpayers with incomes between $110,000 and $130,000. Married taxpayers must file a joint return in order to claim the tax credit.
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The American Opportunity tax credit is available for 100 percent of the first $2,000 of qualified tuition and fees paid and 25 percent of the next $2,000 paid per tax year per student. The maximum tax credit is $2,500 per student per year.
The Lifetime Learning tax credit is available for 20 percent of the first $10,000 of qualified tuition and fees paid per year per family. The maximum tax credit is $2,000 per family per year.
The American Opportunity and Lifetime Learning tax credits cannot both be claimed for the same student in the same tax year. The taxpayer may claim both tax credits on one tax return (for different students) but must choose which credit to claim for each student. Taxpayers will need to file IRS Form 8863 Education Credits with their tax returns to claim the tax credits.