If you are paying college expenses for yourself or for one of your dependents, you may be able to deduct the tuition and fees on your federal tax return. Qualified tuition and fee expenses may be partially deducted as long as the expenses are not paid by others through programs such as scholarships, grants, or employer programs, and they are not paid using tax-free funds like savings bonds.
The student in question must be enrolled in at least one course at an eligible educational institution, and deductible fees must be those required for college attendance. Expenses for books and mandatory student-activity fees may be deducted, while other expenses such as room and board, medical expenses, and insurance are not. See IRS Publication 970, "Tax Benefits for Education," for details.
The tuition and fees deduction can reduce your taxable income by up to $4,000, as long as you meet the following criteria:
- Filing Status – You cannot claim this credit if your filing status is married filing separately. Other filing statuses are acceptable.
- Exemption Status – If you can be claimed as a dependent on someone else's return, the tuition and fees deduction does not apply to you.
- Residency Status – You must be a U.S. citizen or resident alien to claim the tuition and fees tax deduction. If you or your spouse fit the definition of non-resident alien for any part of the 2015 tax year, you are ineligible for this deduction.
- Income – To claim the full amount of deduction available to you, your modified adjusted gross income (MAGI) must be $65,000 or less if filing single and $130,000 for married filing jointly. You can claim a maximum of $2,000 with a MAGI of $80,000 single and $160,000 jointly. At incomes beyond that, you are not eligible for this exemption. See Publication 970 for details on how to calculate MAGI.
- Tax Credits – If you qualify for both, you can either take a tax credit or tax deduction on your educational expenses, but you must choose between one and the other. While tax deductions only reduce taxable income, tax credits are preferable since they directly reduce your tax bill.
See if you qualify for the American Opportunity Credit or the Lifetime Learning Credit before claiming the tuition and fees deduction. IRS Publication 970 also contains details on these credits and how they may be claimed.
- Not Otherwise Claimed – Similarly to the credit/deduction question, you cannot claim the education deduction if it was already claimed under another deduction category such as business expenses.
The tuition and fees deduction has one other benefit in that it is an above-the-line deduction. You can claim it whether or not you itemize, and it reduces your taxable income.
Be sure to keep the timing straight on payments. The time of payment dictates the deduction year. A payment made in December of 2015 that applies to the first semester classes of 2016 still counts as a 2015 deduction, but if the payment for that same class was made in early January of 2016, it applies to the 2016 tax year. Time your payments when they benefit you the most.
In most recent years, Congress had allowed the tuition and fees tax deduction to expire only to revive it at the last minute. This time it was not only renewed for the 2015 tax year; it was also extended through the 2016 tax year. That may be as close to permanent as this tax deduction will get. If you qualify in either tax year, consider taking advantage of the tuition and fees deduction while you still can.