Education Tax Benefits

The federal government offers several tax benefits for pursuing a college education including tax credits, tax deductions, and exclusions from gross income:

For additional information on education tax benefits, see Internal Revenue Service Publication 970.

There are several other tax provisions that may help your family cover the cost of higher education:

  • Grants and scholarships are usually excluded when calculating the gross income of the student.
  • If an individual receives debt forgiveness following graduation, the recipient doesn’t have to report the amount of the forgiveness as income in certain cases.
  • If a college or university reduces the tuition charged or pays the tuition of the immediate family of an employee, that tuition reduction or tuition payment doesn’t count as income.

Also keep the following in mind as you explore education tax benefits:

  • The definitions of qualified college costs differ. This means that although one savings or investment option can be used to pay the cost of books or room and board, another might not allow it.
  • Each tax benefit option has different phase-in and phase-out periods as well as varying income eligibility requirements.
  • Some tax provisions can’t be used together in the same tax year, so families may need to choose between incentives.