For some, tax day means a much-awaited refund. For others, it may mean another expense. There are a variety of factors that can affect your taxes, including your status as a student.
Before we dive in too much further, we want to highlight the fact that tax law is complicated and can change from year to year. You should always consult with a tax professional when it comes to what might and might not affect your taxes and never rely solely on a blog post (like this one) for tax guidance. This is for informational purposes only and is not a substitute for talking with a pro.
If you paid for qualified educational expenses or student loan interest in the previous tax year, you may qualify for a student loan interest deduction or an education tax credit, which could potentially mean a lower tax bill or a higher tax refund.
First, it might be helpful to understand the difference between a deduction and a tax credit. When you claim a deduction on your taxes, it is subtracted from your total income. Your income taxes are assessed after the deduction is taken. In contrast, a tax credit is subtracted from any taxes you may owe.
Before you mentally spend your tax refund, know that not everyone is eligible for each of these deductions or tax credits. There are a number of requirements that have to be met in order to take advantage of these tax benefits. Here’s a simple breakdown of some of the tax credits and deductions some might be eligible for.
Related: The basics on how student loans work
Student Loan Interest Deduction Explained
Usually, you can expect to receive a 1098-E form from each of your student loan providers by the end of January each year. This form details the amount of interest you paid over the past calendar year.
Your loan servicer is only required to send you a 1098-E form if you paid more than $600 in interest on a qualified student loan. If you did not receive this by mail, your provider may have sent an email notification to let you know your 1098-E is ready to download.
Since this is an adjustment to your gross income, you can take this deduction even if you don’t itemize. In order to claim this deduction, there are certain income requirements that must be met. The deduction is phased out when an individual’s modified adjusted gross income (MAGI) reaches certain thresholds.
To qualify for the maximum $2,500 student loan interest deduction, you must meet certain filing and income criteria. It may be possible to deduct student loan interest that has been paid on loans issued for yourself, your spouse (if you file jointly) and your dependents. However, parents can’t claim the student loan interest deduction if the student loan is in their dependent’s name only.
For the 2019 tax year, the benefit begins to phase out at $70,000 for those whose filing status is single and $140,000 for those who are filing jointly.
The deduction is eliminated completely for those filing as single who make more than $85,000 and for those who are filing jointly that make more than $170,000.
Am I Eligible for Education Tax Credits?
If you paid tuition, fees or other education-related expenses during the tax year, you may be eligible for an education tax credit, either the American Opportunity Tax Credit (AOTC) or the Lifetime Learning Credit (LLC).
Note that you can’t claim both credits for the same individual within the same year. If you qualify for both, it might be worth calculating them both in order to determine the option that is best for you.
American Opportunity Credit
This credit applies toward 100% of the first $2,000 of eligible education expenses and 25% of the next $2,000.
What does this mean? Students who are enrolled at least half time in a degree or certificate program for one academic period during the tax year may be eligible to receive a credit of up to $2,500 for the cost of tuition, fees and course materials.
The credit may be claimed for up to four years, but it can’t be claimed after the eligible student has completed the first four years of post-secondary education, which means those pursuing graduate degrees aren’t eligible for this tax credit.
The MAGI limit for eligibility is $90,000 for individual filers and $180,000 for joint filers. The credit is reduced if MAGI is between $80,000 and $90,000 for individual filers and between $160,000 and $180,000 for joint filers.
The AOTC is a refundable tax credit. This means that if the credit takes your tax bill to zero, you can get 40% of the unused credit, up to $1,000, as a tax refund. The IRS has even more information on the requirements and eligibility factors for the AOTC on its website.
Lifetime Learning Credit
This credit is worth 20% of the first $10,000 of eligible education expenses, for a maximum of $2,000.
The LLC is similar to the AOTC but with a few important differences. This credit has a lower income limit than the AOTC. For the 2019 tax year, if your MAGI is less than $68,000 as someone whose filing status is single, you should qualify for the deduction.
If you file a joint return, earning less than $136,000 should allow you to qualify for the deduction. The benefit is reduced (phased out) for those filing single with a MAGI between $58,000 and $68,000.
For those filing a joint return, the phase-outs occur between $116,000 and $136,000. If your MAGI is above $68,000 for single filers, or $136,000 for joint filers, you won’t be able to claim the LLC.
There is no limit to how many years you can claim the credit. The credit can be used to help pay for a variety of educational expenses, including undergraduate, graduate and professional degrees. You could even qualify for the credit if you’re taking classes to “acquire or improve job skills.”
Unlike the AOTC, the LLC is not refundable. This means that the credit can be used to pay for the taxes you owe, but if it surpasses that, you won’t receive any money back as a refund. The IRS has even more information on the LLC available on its website.
Finding Tax Help
If you want to learn more about these education tax credits and additional education tax deductions, the IRS has further information
If the process of filing your taxes seems overwhelming or you’re still confused by the ins and outs of these tax advantages, you could consider finding help this tax season. A qualified tax professional could assist you in navigating your taxes and help you maximize your refund with less hassle — and they will know more about any credits or deductions you may be eligible for. After all, it’s their job to know!
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