You should take advantage of tax benefits designed for students. Here are some of the most common student-related tax issues that you should be aware of.
While you are doing your taxes, you may need to look at your 1098-T, which is the statement that PCC sends to the government telling them how much tuition you paid during a certain year. You can find the link to the 1098-T in the MyPCC Paying for College tab. More information is available on PCC's Educational Tax Credits page.
You can choose the education benefit that will give you the lowest tax. You may want to compare the tuition and fees deduction to the education credits. Here are three common tax benefits for students:
American Opportunity Credit
The American Opportunity Credit is worth up to $2,500. Even if you don’t make enough money to owe taxes, if you qualify for the credit and file a return, you may get up to $1,000 back. Tuition, fees and course materials qualify for the credit. It’s available for your first four years after high school, if you went to college at least half time. You can claim it on your 2009 through 2012 tax returns. The credit amount starts phasing out if you make more than $80,000 (or $160,000 if you’re filing a joint return). See more information on the American Opportunity Credit at IRS.gov.
Lifetime Learning Credit
You may be able to claim a Lifetime Learning Credit up to $2,000 for qualified educational expenses. There is no limit on the number of years the Lifetime Learning Credit can be claimed for a student. A tax credit reduces the amount of income tax you may have to pay (unlike a deduction which reduces the amount of income subject to tax, a tax credit directly reduces the tax itself). The Lifetime Learning Credit is a nonrefundable credit. This means that it can reduce your tax to zero, or if your Lifetime Learning Credit is more than taxes owed, then you may be eligible for a tax refund. See more information on the Lifetime Learning Credit at IRS.gov.
The Tuition Deduction can reduce the amount of your income subject to tax by up to $4,000. You may be able to deduct qualified educational expenses paid during the year for yourself, your spouse, or your dependents. You cannot claim this deduction if your status is "married filing separately" or if another person can claim an exemption for you as a dependent on his or her tax return. The qualified expenses must be for higher education. See more information about Tuition Deduction at IRS.gov.
Many types of educational assistance are tax free if they meet the requirements. For example, a scholarship is tax-free if:
- You are a candidate for a degree at an eligible educational institution, like PCC
- It does not represent payment for teaching, research, or other services required as a condition for receiving the scholarship
- You use the scholarship to pay qualified education expenses
In order for these to be qualified education expenses, the terms of the scholarship cannot require that it be used for other purposes, such as room and board, or specify that it cannot be used for tuition or course-related expenses.
Qualified education expenses include:
- Tuition and fees required to enroll at or attend an eligible educational institution
- Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution
Expenses that do not qualify include:
- Room and board
- Clerical help
- Equipment and other expenses that are not required for enrollment in or attendance at an eligible educational institution.
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These are the most common tax issues for college students and their families. However, you should look over the information at the IRS to make sure your educational assistance is tax-free. If you fail to report assistance that is not tax-free as taxable income, you could face fines and penalties.