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All About the Tuition and Fees Deduction

The Tuition and Fees deduction allows students to deduct approved education expenses from their taxable income. The status of this deduction changes frequently. While the Deduction was available for taxpayers all throughout 2020, it was discontinued at the end of the year. For now, it remains suspended as of April 2021.

Although it is not currently in effect, this deduction has a history of being discontinued and rebooted. However, it is worth learning about so that you can utilize it when it is in effect. In this article, we will break down all that you need to know about the deduction. We will also point you to similar programs that are still in effect today to help students get more money back on their tax returns.

Even though the credit is not currently available, there are several other options for educational tax credits you can claim. Our guide goes into detail on each opportunity’s eligibility and benefits.

Also read: Are scholarships taxable?

What is the Tuition and Fees tax deduction?

When in effect, this deduction is an opportunity for students to deduct up to $4,000 of approved educational expenses from their adjusted gross income. By reducing their adjusted gross income, they reduce the total sum that they owed in taxes. 

The deduction was established in 2002. After being discontinued in 2005, it has been appearing and disappearing every few years. Most recently, it was discontinued in 2017, reinstated at the beginning of 2020, and discontinued again at the start of 2021. 

Tax deductions should not be confused with tax credits; while a credit directly reduces the amount of money you owe the IRS, a deduction reduces the amount of income you owe taxes on. For example, a tax credit of $1,000 would refund the taxpayer $1,000 to their bank, while a deduction of $1,000 would refund the taxpayer however much they had paid in taxes on $1,000 of income. This refund would come out to closer to $200.

The maximum Tuition and Fees deduction varies based on income. In 2020, individuals earning under $65,000 per year could deduct up to $4,000 while individuals earning between $65,000 and $80,000 could deduct up to $2,000. Anyone earning over $80,000 per year was ineligible. For couples filing jointly, these limits are doubled.

Learn more: Are work study earnings taxed?

What can I do while the Tuition and Fees deduction is inactive?

Even though the deduction is currently discontinued, there are three other programs that allow you to use your education expenses to reduce the amount you owe the federal government:

529 College Savings Plan 

529 plans are savings accounts for education expenses that are exempt from federal taxes and most state taxes. They require more planning, but like the Tuition and Fees deduction, a 529 effectively renders educational expenses tax-free.

American Opportunity Tax Credit 

The AOC is a tax credit for up to $2,500 per year that can be applied towards the first four years of educational expenses to taxpayers in a qualifying income bracket. 

Lifetime Learning Credit 

The LLC is a tax credit for up to $2,000 per year that can be applied towards educational expenses at any level to taxpayers in a qualifying income bracket.

Frequently asked questions about the Tuition and Fees Deduction

What expenses can I deduct in the Tuition and Fees deduction? 

Tuition, some enrollment fees, and course materials are included. Room and board, fees for optional programs, insurance, and activities fees are not included.

Who can claim the Tuition and Fees deduction? 

When it is active, the deduction can be claimed by taxpayers who have paid qualified educational expenses, who haven’t claimed the AOC or LLC, and who are in a qualifying income bracket. In the past, the deduction began to phase out at an income level of $65,000.

Can I claim a Tuition and Fees deduction for previous years? 

The rules may change year by year, but in the last iteration of the Tuition and Fees deduction, taxpayers could amend their past returns to claim the deduction through 2017. When and if the deduction is reinstated, you should look into amending your past returns if you had education expenses that you were taxed on.

Can I claim an Educational Tax Credit and a Tuition and Fees deduction in the same year? 

You cannot claim an Educational Tax Credit and the deduction in the same year. In fact, you can only claim a maximum of one Educational Tax Credit per year. 

Where can I claim the Tuition and Fees deduction? 

When it is active, you can claim the deduction on Schedule 1 of Form 1040.

Can I utilize a 529 plan in conjunction with the Tuition and Fees deduction?

 You can utilize both plans in the same year, but the expenses made through your 529 plan cannot count towards your total educational expenses in your Tuition and Fees deduction. Once you deduct an expense for an income tax benefit, you cannot use it for any other income tax benefits.

Can I claim the Tuition and Fees deduction if I file as a dependent?

You cannot claim the deduction if you file your taxes as a dependent. This benefit is meant for those bearing the majority of education expenses. Therefore, if someone else is paying for your college education, they may benefit from the deduction.

Read more: How much is the 529 tax deduction worth?

Final thoughts

Remember, this article is providing general advice. Make sure you talk with your tax preparer to discuss any tax benefits you could receive while attending college.