The Internal Revenue Code provides both tax credits and deductions that may be taken to reduce the federal income tax burden for students, or those paying the costs of a student's higher education. Credits directly reduce the amount of income tax owed, while deductions reduce the amount of taxable income upon which taxes are computed.
University reporting of expenses and aid received
Per IRS regulation*, the UW reports all tuition payments in Box 1, financial aid, grant or scholarship payment information for students in Box 5 on the 1098T with the detail information from the student's acount on the UW layout format. This 1098T information is reported for the current calendar year only. Amounts prepaid for future quarters/years will not be reported. Expenses for books, supplies and/or equipment are not reported to the IRS. Students must keep the receipts and report these expenses when filing a tax return.
Claiming the credits
Who can claim an education credit?
There are additional rules for each credit, but you must meet all three of the following for both:
- You, your dependent or a third party pays qualified education expenses for higher education.
- An eligible student must be enrolled at an eligible educational institution.
- The eligible student is yourself, your spouse or a dependent you list on your tax return.
Who cannot claim an education credit?
You cannot claim an education credit when:
- Someone else, such as your parents, list you as a dependent on their tax return
- Your filing status is married filing separately
- You already claimed or deducted another higher education benefit using the same student or same expenses (see Education Benefits: No Double Benefits Allowed for more information)
- You (or your spouse) were a non-resident alien for any part of the year and did not choose to be treated as a resident alien for tax purposes (find more information in Publication 519, U.S. Tax Guide for Aliens)
Use IRS Form 8863 to determine the amount of the credit. Be sure to read the instructions that accompany the form.
To learn more about education tax credits and eligibility, please visit the IRS website or links below:
- American Opportunity Tax Credit (AOTC)
- Lifetime Learning Credit (LLC)
- Education Credits – AOTC and LLC
- Student Loan Interest
- Tuition and Fees Deduction
If you need further assistance, contact the IRS or a tax advisor. The University cannot provide assistance regarding your eligibility and/or the calculation of the credit. You can also check out our educational tax credits FAQs.
Education Savings Account (ESA)
Taxpayers can invest up to $2,000 a year for each child under age 18. All earnings are entirely tax free, if they are used to finance a higher education. Please review IRS publication 970 for specific information.
The Internal Revenue Code allows people under the age of 59 1/2 to withdraw money for higher education expenses from a regular IRA or the new Roth IRA without paying a penalty for early distribution. However, tax may be owed on at least part of the amount distributed. These funds may be used for the taxpayer's own higher education expenses, or for those of their spouse,
Other Useful Resources
- SFS Tax Workshop Presentation
- National Association of Student Financial Aid Administrators (NASFAA)
- IRS - Tax Information for Students
- IRS Tax Topic - Tax Credits
- IRS Publication 970 - Tax Benefits for Education
- IRS Publication 17, Ch. 35 - Education Credits