Education Tax Deductions & Tax Credits
Tax credits, deductions and savings plans can help taxpayers with their expenses for higher education.
- A tax credit reduces the amount of income tax you may have to pay.
- A deduction reduces the amount of your income that is subject to tax, thus generally reducing the amount of tax you may have to pay.
- Certain savings plans allow the accumulated earnings to grow tax-free until money is taken out (known as a distribution), or allow the distribution to be tax-free, or both.
- An exclusion from income means that you won’t have to pay income tax on the benefit you’re receiving, but you also won’t be able to use that same tax-free benefit for a deduction or credit.
For college students, sometimes the parents may get the tax benefit, and other times the student may get the tax benefit. Often this can be worked to obtain the highest tax benefit overall.
IRS Tax Benefits for Education: Information Center
IRS Tax Tip 2016-36, March 9, 2016
Tax Savings from Higher Education Costs
Employee education that is appropriate and helpful in the current job (and not to qualify the employee for a new job was generally deductible through 2017 Reg. 1.62-5(a). The education needs to maintains or improve skills required by the individual in his employment or other trade or business, or meet the express requirements of the individual’s employer, or the requirements of applicable law or regulations, imposed as a condition to the retention by the individual of an established employment relationship, status, or rate of compensation. MBA courses that require a temporary cessation of paid employment for less than one year can qualify because the temporary suspension of employment is temporary and definite. Furner v. Commissioner, 393 F.2d 292 (7th Cir. 1968) and Rev. Rul. 68-591. Starting with 2018 this deduction is eliminated for employees.
Trade or business continuing education (such as a Schedule C) continues to be deductible.