The Internal Revenue Service offers tax breaks to help with the cost of college tuition. A college student can't receive a tax credit if a parent claims the child as a dependent. Instead, the parent is entitled to claim college expenses paid for the child. A parent can receive educational tax credits and deductions for tuition and related expenses.
To meet the IRS dependency requirements, the student must be your child by birth or adoption, foster child, sibling or stepsibling, or a descendant of one of these. The college student must be under age 24. A child qualifies as a dependent if the child provides more than 50 percent of his own support. In most cases, receiving scholarship or grant money does not disqualify a child from being classified as a dependent. Dependent children must live with a parent for more than half the year, but college is considered a special circumstance. Children living off campus can still qualify as dependents.
Loan Interest Deductions
Parents can deduct the interest paid on student loans from a federal post-secondary education loan program used solely to pay higher education expenses. Examples of qualified loans include a Federal Perkins Loan and federal direct student loans. If the student is making the loan payment and is claimed as a dependent, neither the student nor the parent is eligible for the deduction. As of the date of publication, parents can deduct $2,500 in interest on each qualifying loan. According to the University of Kansas Endowment Loan Program, the deduction is phased out for single taxpayers who earn $70,000 for the year, and for married taxpayers filing a joint return who earn $140,000 or more.
American Opportunity Tax Credit
Parents are entitled to tax credits if they paid for a dependent's qualified education expenses during the year. The American Opportunity Tax Credit is equal to $2,500 per student. The credit reimburses 100 percent of the first $2,000 spent and 25 percent of the next $2,000. Parents can claim this credit for up to four years. Tuition, fees, books and supplies are covered, but housing and transportation expenses don't qualify. The credit is available, the IRS explains, to single taxpayers whose modified adjusted gross income is $80,000 or less and to married taxpayers whose modified AGI is $160,000 or less. A reduced credit is available to single taxpayers with a modified AGI of $90,000 or less and married taxpayers with a modified AGI of $180,000 or less. As of the date of publication, the American Opportunity Tax Credit is scheduled to expire in December 2012.
Lifetime Learning Credit
The Lifetime Learning Credit is another tax credit parents can claim. Unlike the American Opportunity Credit, it's not limited to just four years of college. The credit is limited to $2,000 per tax return. Courses are not limited to undergraduate or graduate degree programs. A parent can claim tuition and fees paid for all courses the child takes to acquire or improve job skills. As of the date of publication, the income limit for a single filing parent is $61,000 and for joint filers $122,000.
- University of California Irvine: Frequently Asked Questions About Eligibility for the Student Loan Interest Deduction
- IRS: Six Facts about the American Opportunity Tax Credit
- Scholarship Hunter: Tax Advice For College Students and Parents
- H&R Block: American Opportunity Credit and Hope Credit
- IRS: Publication 970 - Additional Material
- IRS: A Qualifying Child
- KU Endowment: Student Loan Interest Deductions
- IRS: American Opportunity Tax Credit
- "If Unmarried, Who Claims the Child on Income Taxes?"
- Tax Benefits of a Custodial Parent
- Tax Deductions for Expenses Paid for Children Not Claimed as Dependents
- "What Tax Breaks Are There for Tuition, Room & Board?"
- How Much Money Do You Receive for Claiming a College Student on Taxes?
- First Time Baby Tax Credit
- Must a Child Live With You to Claim Him or Her on Your Taxes?
- The Rules for Deducting Childcare Expenses