University Students: Are You Eligible For Tax Deductions?

Being a university student can be expensive, but there are tax benefits available to help. These include tax credits and tax deductions, which can reduce the amount of income tax owed or lower the amount of income that is subject to tax. For example, the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC) are two tax credits that can help offset education costs. The AOTC is worth a maximum of $2,500 per eligible student, while the LLC is worth up to $2,000 per tax return. Additionally, students may be able to claim deductions for course/tuition fees, stationery, textbooks, student service fees, and equipment depreciation and repairs. It's important to note that eligibility criteria and requirements may apply, and it's recommended to consult with a tax professional for specific situations.

American Opportunity Tax Credit

The American Opportunity Tax Credit (AOTC) is a tax credit for qualified education expenses paid for an eligible student for the first four years of higher education. The maximum annual credit is $2,500 per eligible student. The student, someone claiming the student as a dependent, or a spouse making postsecondary education payments can claim the AOTC on their tax return.

The AOTC helps offset the costs of postsecondary education for students or their parents (if the student is a dependent). The AOTC allows an annual $2,500 tax credit for qualified tuition expenses, school fees, and course materials.

Eligibility Requirements

To be eligible for the AOTC, the student must:

• Be pursuing a degree or other recognised education credential.
• Be enrolled at least half-time for at least one academic period beginning in the tax year.
• Not have finished the first four years of higher education at the beginning of the tax year.
• Not have claimed the AOTC or the former Hope Credit for more than four tax years.
• Not have a felony drug conviction at the end of the tax year.

Qualifying Expenses

Qualifying expenses include tuition and fees to an eligible educational institution, as well as purchased items relating to the program of study such as books, supplies, and equipment.

The credit does not cover costs associated with room, board, transportation, or medical insurance.

Income Limits

To claim the full credit, your modified adjusted gross income (MAGI) must be $80,000 or less ($160,000 or less for married filing jointly).

You receive a reduced amount of the credit if your MAGI is over $80,000 but less than $90,000 (over $160,000 but less than $180,000 for married filing jointly).

You cannot claim the credit if your MAGI is over $90,000 ($180,000 for joint filers).

How to Claim the AOTC

To claim the AOTC, you must complete Form 8863 and attach the completed form to your tax return.

Lifetime Learning Credit

The Lifetime Learning Credit (LLC) is a provision of the U.S. federal income tax code that lets parents and students lower their tax liability by up to $2,000 to help offset higher education expenses. This credit may be claimed year after year, without a limit. However, it cannot be combined with the American Opportunity Tax Credit in the same tax year.

The Lifetime Learning Credit is for qualified tuition and education-related expenses paid for by eligible students enrolled in an eligible educational institution. This includes undergraduate, graduate, and professional degree courses, as well as courses to acquire or improve job skills.

To be eligible for the credit, a student must be enrolled at an educational institution considered eligible by the Internal Revenue Service (IRS), and they must be taking higher education courses towards a degree or a recognized educational credential that provides or improves job skills. The student must also be enrolled at a qualifying institution for at least one academic period that began within the tax year for which they are claiming the credit. The IRS defines "academic period" as a semester, trimester, quarter, summer session, or other period determined by the school.

To claim the LLC, you must meet the following three requirements:

• You, your dependent, or a third party pays qualified education expenses for higher education.
• You, your dependent, or a third party pays the education expenses for an eligible student enrolled at an eligible educational institution.
• The eligible student is yourself, your spouse, or a dependent you listed on your tax return.

The amount of the credit is 20% of the first $10,000 of qualified education expenses, with a maximum credit of $2,000 per return. The LLC is not refundable, meaning you can use the credit to pay any tax you owe, but you won't receive a refund for any remaining credit.

To claim the LLC, you must complete Form 8863 and attach it to your Form 1040 or Form 1040-SR. You will also need to include the figures from Form 1098-T, which is sent by your educational institution and shows information about the tuition and fees paid to the qualifying school.

Student Loan Interest

To be eligible for the student loan interest deduction, the following criteria must be met:

• You paid interest on a qualified student loan in the tax year.
• You are legally obligated to pay interest on a qualified student loan.
• Your filing status is not married filing separately.
• Your modified adjusted gross income (MAGI) is less than a specified amount, which is set annually. For the 2023 tax year, the deduction is gradually reduced and eventually eliminated when your MAGI reaches $80,000 ($160,000 if filing a joint return).
• Neither you nor your spouse, if filing jointly, are claimed as dependents on someone else's tax return.

A qualified student loan is a loan taken out solely to pay for qualified education expenses, which must be for you, your spouse, or a dependent. The expenses must be incurred within a reasonable period before or after taking out the loan, and the education must be provided during an academic period for an eligible student.

It's important to note that loans from qualified employer plans or similar sources are not considered qualified student loans. Qualified education expenses typically include the total costs of attending an eligible educational institution, such as tuition, fees, books, supplies, equipment, and necessary related expenses like transportation.

The student loan interest deduction is claimed as an adjustment to income, so you don't need to itemize your deductions. This means you can claim the deduction even if you don't usually itemize deductions on your tax return.

Self-Employment Tax

Eligibility Criteria for Self-Education Expenses:

• Improving Academic Qualifications: You can claim deductions if your studies improve your academic qualifications for your current job.
• Enhancing Knowledge or Skills: If your education enhances the knowledge or skills required for your current job, you may be eligible for deductions.
• Traineeship: If you're undertaking a self-education course as part of a traineeship, you may be able to claim deductions.
• Income Increase: If your course, qualification, or degree can lead to an increase in income within your current employment, you may be eligible for deductions.

Common Tax Deductions for University Students:

• Course/Tuition Fees: You may be able to claim deductions on course or tuition fees, excluding certain types of loans or repayment programs.
• Stationery and Textbooks: Expenses on stationery, textbooks, and other required course materials are typically deductible.
• Student Service Fees: Some student service fees may be deductible.
• Equipment Depreciation and Repairs: Costs associated with the depreciation and repairs of laptops, computers, printers, and similar equipment may be deductible.
• Car Expenses: If applicable, you can claim deductions on car expenses for work-related travel.
• Uniforms: You may be able to claim deductions on uniforms required for your work, provided they have a logo.
• Travel: Work-related travel expenses, such as training or conferences, may be deductible.

Important Considerations:

• Full-Time Employment: In general, only university students who also work full-time will qualify for tax deductions on their tax returns.
• Non-Deductible Expenses: Some expenses that are typically non-deductible include HECS-HELP repayments, occupancy expenses (rent, house insurance, rates, etc.), and financial supplement loan repayments.
• Receipts and Documentation: Keep printed or electronic receipts or invoices for any study-related expenses you plan to claim as deductions.
• International Students: Individuals on student visas typically can't claim self-education expenses as their primary purpose is studying, making it challenging to meet all the requirements.
• Quarterly Payments: Self-employed individuals are often required to make quarterly estimated tax payments.
• Forms and Schedules: When filing taxes, self-employed individuals typically use Form 1040, Schedule C (for business income and expenses), and Schedule SE (for self-employment tax).
• Self-Employment Tax Rate: The self-employment tax rate includes Social Security and Medicare taxes, amounting to approximately 15.3% of your net business income.
• Business Expenses: Keep track of business expenses, such as equipment purchases or repairs, as they may be deductible against your business income.

Standard Mileage Rate

In the US, the Internal Revenue Service (IRS) allows individuals to take a deduction based on the mileage used for business, charity, medical, or moving purposes. The standard mileage rates for 2025 are as follows:

• Self-employed and business: 70 cents/mile
• Charities: 14 cents/mile
• Medical: 21 cents/mile
• Moving (military only): 21 cents/mile

The standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs. These rates apply to electric, hybrid-electric, and gasoline and diesel-powered vehicles.

It is important to note that to claim any kind of tax deduction, you must have earned an income and paid taxes. In general, only full-time employed taxpayers who also study subjects directly related to their current work will be eligible to claim university student tax deductions.

Frequently asked questions