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This article was fact-checked by our editors and Jennifer Samuel, senior product specialist for Credit Karma Tax®.
A college education is a big-ticket item, no matter how families divvy up the cost.
Students and parents pay about the same percentage toward college costs — 30% and 31%, respectively — according to a Sallie Mae survey of 1,600 students and parents. Both parents and students draw on income, savings and borrowing to handle their percentage of the costs.
Student tax credits and deductions can help ease the pain of college education costs. But if your parents are helping with finances while you’re in school, it’s important to agree on who should claim education-related tax breaks.
- Everyone needs a break
- Things to consider
- Who should claim the student tax credit or deduction?
- No double-dipping allowed
Everyone needs a break
Who couldn’t use a break on federal income taxes? The IRS is pretty clear on whether a parent or student can claim an education tax break: It’s either one or the other — not both.
Typically, it comes down to income and whether the student is considered a dependent.
“As a general rule, most of the time the parents should take the tax credit because it’s more valuable to them than the kids,” says Joe Orsolini, president of College Aid Planners.
But everyone’s tax situation is different. Here’s a guide on what to consider when deciding who should claim these student tax credits and deduction.
Things to consider
Students and parents will need to communicate come tax time. Before filling out your taxes, evaluate these factors together.
Dependent or not?
This is an important question to resolve, as it directly affects who can claim higher education tax credits and deductions. If your parents (or anyone else) claim you as a dependent on their tax return, one or the other might be able to claim an education-related tax break, but not both of you.
- You are younger than 19 or are younger than 24 and a full-time student
- You live with your parents (one or both) in the U.S. for more than half the year
- You didn’t file a joint return with a spouse (the exception here is if you filed only to claim a refund)
The American opportunity tax credit, lifetime learning credit and student loan interest deduction all have requirements for the filer’s modified adjusted gross income. If you or your parents have income above the limits, then neither of you can claim the tax breaks.
Students typically won’t have this problem, Orsolini says.
“In many cases, the kids won’t earn enough that they have to deal with paying any taxes, or have anything to offset the credits with,” he says. In fact, a Georgetown University study found that 70% of working students age 16-29 earn less than $20,000 per year.
But here are two cases in which it may make sense for you, the student, to claim the tax break.
- If your parents’ incomes are higher than the income limits for student tax credits, they won’t qualify to take the tax breaks
- If your income is higher than your parents’ income, the tax breaks may be more valuable to you.
If it makes more sense for you to claim the credit, make sure your parents aren’t planning to claim you as a dependent.
Who should claim the student tax credit or deduction?
Every tax break has different eligibility conditions and income limits. So the question of who should claim them will depend on these requirements, plus your own tax situation.
If you meet income requirements for claiming the student loan interest deduction, it could help offset up to $2,500 of interest paid toward a qualified student loan.
To be eligible for the full deduction, the claimant’s modified adjusted gross income must be less than $65,000 ($135,000 for joint filers). If your MAGI is between $65,000 and $80,000 ($135,000-$165,000 for joint filers) your deduction will be reduced. And if your MAGI is $80,000 or more ($165,000 or more for joint filers), you won’t be able to take the deduction at all.
You also can’t take this deduction if your filing status is married filing separately.
Start with this question: Who took out the loan? The person claiming the student loan interest deduction must be legally obligated to pay the interest, can’t be listed as a dependent on someone else’s return, and their income must fall below the MAGI limits. If all of this is true, then the student can claim the deduction, even if someone else pays the bill for them.
If the student’s parents took out the loan or co-signed on it, they can claim the deduction as long as they also claim the student as a dependent. Of course, their income must fall below the income limits.
You claim this deduction on Form 1040, but you may need to complete additional worksheets depending on income sources.
If you’re eligible to claim it, the American opportunity tax credit (or AOTC) can be worth $2,500 per eligible student per year for the first four years of the student’s college education. That’s 100% of the first $2,000 you paid toward qualified education expenses and 25% of the next $2,000. Plus, if the credit reduces your tax liability to zero, the IRS can refund 40% of the remaining amount (up to $1,000) back to you.
To qualify for the American opportunity tax credit, your MAGI must be less than $90,000 if single or $180,000 if married and filing jointly. The credit is gradually reduced if your MAGI is between $80,000 and $90,000 for single filers or $160,000 and $180,000 if you file a joint return.
Whether the parent or student claims this credit, the student must be …
- Within the first four years of higher education
- Taking classes at least half time
- Enrolled in a degree or certificate program
- Free of felony drug convictions
To claim this credit, you must complete Form 8863 and attach it to your 1040.
This credit is worth 20% of the first $10,000 you paid toward education expenses during the year, for a max of $2,000. You can only claim the lifetime learning credit once per tax return per year, but there’s no limit to the number of years you can claim it. However, it’s a non-refundable credit, so if you owe less than $2,000 in federal income tax, this credit can only lower your tax to zero.
To qualify for this credit, there’s no requirement that you attend school half-time, and you don’t have to be pursuing a degree or certificate. But there are income limits: Your MAGI must be less than $66,000 if single ($132,000 if married and filing jointly). The credit is phased out if your MAGI is between $56,000 and $66,000 for single filers (between $112,000 and $132,000 if you file a joint return).
Additional requirements for claiming the credit are …
- The education expenses you paid were for yourself, your dependent or a third party and were at an eligible educational institution.
- The person claiming the credit isn’t claimed as a dependent on anyone else’s tax return.
- The student was enrolled for at least one academic period during the tax year.
- The courses were for a higher education degree, a recognized vocational credential or job-skills improvement.
If you’re a student looking to claim the credit on your own return, you might be able to take this credit as long as you meet MAGI requirements and you’re not a dependent on anyone else’s return. If your parents still list you as a dependent on their return, you can’t claim the credit for yourself but they might be able to take it — as long as they meet MAGI limits.
To claim this credit, you’ll have to complete Form 8863 and include it with your 1040.
No double-dipping allowed
All these education-related tax breaks may sound great, but it’s important to remember the IRS doesn’t allow filers a double benefit for education expenses.
You can’t take a lifetime learning credit and the American opportunity tax credit. You can’t deduct higher education expenses and claim the AOTC for the same expenses. And if you paid for education expenses with tax-free funds, such as a scholarship or grant, you can’t claim an education credit for those expenses, too.
College costs aren’t getting cheaper, but education tax breaks are there to help you offset some of those expenses.
Before tax time rolls around, talk with your parents to see who should claim education-related tax breaks. The answer will depend on many factors, including income, filing status and the dependency question.
Jennifer Samuel, senior tax product specialist for Credit Karma Tax®, has more than a decade of experience in the tax preparation industry, including work as a tax analyst and tax preparation professional. She holds a bachelor’s degree in accounting from Saint Leo University. You can find her on LinkedIn.