Tuition and Fees Deduction
How to Qualify for the Tuition and Fees Deduction
So, why is this deduction so desirable? Well, for one, the amount of the tuition and fees deduction is taken as a deduction “above the line”, and not on Schedule A. Secondly, Congress reinstated the deduction for the tax year 2020, and it will expire on December 31, 2020.
In essence, the purpose of the deduction is to permit qualifying taxpayers a subtraction from their taxable income to cover a part of the cost for college tuition. It also permits a deduction for fees paid for education related expenses.
The deduction had expired several times over the years, but then was re-instated for 2017, 2018, 2019, and now to the end of 2020. With so many Americans in financial difficulties because of Covid-19, it’s my belief that the tuition and fees deduction will get extended beyond this year.
The deduction is above the line
By above the line, it means that the expenses for the tuition and fees deduction are subtracted from income before the adjusted gross income (AGI) line. The IRS changed the looks of the Form 1040, so now the various deductions, subtractions, and adjustments are listed on one of the schedules, and then transferred to the 1040 form.
Because this deduction is subtracted from income before the AGI is determined, it makes it very advantageous for people that are able to use it. You don’t have to itemize your deductions either. You can use the new and higher standard deduction, based on your filing status and still claim it.
Your AGI is an important number and several tax breaks can be phased out if your AGI is too high.
Who is qualified to use the deduction?
The first rule is obvious…the tuition and fees deduction can be claimed by those taxpayers who have paid tuition and/or other fees for post-secondary education for themselves, a spouse, or a dependent.
Another rule is that this deduction is not available to be taken by a married couple who are filing separate tax returns. It cannot be taken by someone who is claimed as a dependent on another’s tax return. Plus, non-residents who are taxed that way, are not allowed to claim this deduction.
There’s a number of expenses that colleges force students to pay that can’t be deducted using the tuition and fees deduction. Any expenses for activities related to games, hobbies, or sports that a college requires, is not qualified.
Other fees for insurance, room & board, transportation, or courses that you take that aren’t required for your degree, and not qualified for this deduction.
There is a maximum amount that can be claimed as expenses qualifying for the deduction, too. If you file your tax return as single, qualifying widow or widower, or head of household, you can claim up to $4,000 with an income up to $65,000. Joint filers go up to $130,000.
The next range is for income over $65,000 and up to $80,000 for the above category. That deduction is limited to a maximum of $2,000. The married filing jointly range goes from over $130,000 to $160,000.
Once your income exceeds $80,000 for the single category or $160,000 for married filing jointly, there is no deduction to be claimed. A total phaseout.
How do I claim the deduction?
Shortly after the end of the year, you should receive a Form 1098-T from the college or other educational institution. Block 1 will show the amount that you actually paid. Block 2 shows the amount that the school billed you for.
You must use the block 1 amount because that is what you paid in that tax year. To claim the tuition and fees deduction, fill out IRS Form 8917, transfer it to Form 1040, and it will get submitted to the IRS with the rest of your tax forms.
Be advised that the IRS also sends a copy of the Form 1098-T to the IRS so they can match it with the amount you claimed on your tax return.
Claiming the deduction or the education tax credits
You’re not allowed to claim the tuition and fees deduction in the same tax year that you claim either the American Opportunity or the Lifetime Learning tax credit. The reason that many taxpayers claim the tuition deduction is because their income is too high to qualify for the tax credits.
In a situation like this, you should work your return both ways to see which will benefit you more.
Claiming the tuition and fees deduction can often be more advantageous than using the education tax credits. The tax credits have more stringent rules to qualify such as the American Opportunity credit that is based on the year attending college.
Plus, you can be attending college only part time and still qualify for the tuition deduction. Just attending one class can qualify you.
If you want to claim this deduction in a previous year or years, you can do so by filing an amended tax return for each of those years. The tuition and fees deduction has been retroactively extended to cover the tax years 2017, 2018, and 2019.
An accountant and tax preparer by profession, Gust’s true passion lies in his company blog titled “HBS Financial Group, Ltd.”. Through this venue, he not only tries to teach individuals about budgeting, money management, and taxation but he writes the majority of the articles as well.