What is IRS Publication 970: Tax Breaks for Schools?
Information about tax breaks for students and families saving for or paying for college can be found in IRS Publication 970, which is put out by the Internal Revenue Service (IRS). It talks about handling taxes for the most popular ways to pay for college, like grants, scholarships, and tuition discounts.
It discusses two tax benefits: the American Opportunity Tax Credit and the Lifetime Learning Credit. Also, IRS Publication 970 lists nine tax breaks that students and their families can use to lower the income tax they must pay.
Some of these perks are being able to deduct the interest you pay on your student loans, not having to pay taxes on canceled student loans, being able to deduct tuition and fees, being able to contribute to Coverdell Education Savings Accounts (ESAs), and being able to take part in a qualified tuition program. IRS Publication 970 lists other tax breaks for spending on education. These include cashing in savings bonds tax-free if the money is used for education, taking money out of retirement accounts without a penalty, and being able to deduct education costs from business income.
Other Useful Forms
People taking education credits or withdrawals will also need to have Form 1098-T: Tuition Statement, which has the school’s employer identification number (EIN). They must also complete Form 8863 to get the Lifetime Learning Credit and the American Opportunity Credit.
Publication 970 from the IRS and the Federal Budget
Tax experts sometimes use the term “tax expenditures” to describe tax breaks given for specific reasons.6: IRS Publication 970 thoroughly summarizes the tax dollars that Congress has set aside to help Americans get educated and trained.
Tax credits and deductions for postsecondary education costs lowered federal tax collections by about $9.3 billion in 2021. However, they are expected to rise sharply in 2022, reaching $14.6 billion. The ability to deduct student loan interest is another expensive part of the tax rules concerning education. In 2021, this tax break cut taxes by about $2.1 billion, and it’s expected to cut income by about $2.3 billion in 2022.
Publication 970 from the IRS and Updates
During the fight over the tax reform that Congress passed in 2017, there was a lot of talk about how much college students have to pay in taxes. In earlier drafts of the bill, many students would not have been able to get tax-free tuition waivers. This problem is significant for graduate students since many can only go to school with the help of free tuition. 8 Students spoke out against the change. The bill was changed to keep tuition discounts tax-free. 9 The Bipartisan Budget Act, signed into law on February 9, 2018, pushed back the dates for many tax law perks and added a few new ones.
Any changes to the tax code or tax rules are reflected in Publication 970 daily.
Get IRS Publication 970: Tax Breaks for Education by clicking here.
On the IRS website, you can find all versions of Publication 970 and information about new developments.
Conclusion
- Students can use the tax credits and perks to save for or pay for their education or, sometimes, for someone else in the family.
- Publication 970 lists many tax credits and benefits, but most are only for schools, universities, conservatories, and post-graduate programs.
- If your adjusted gross income is higher than a certain amount each year, you won’t be able to get as many tax breaks or student loan interest deductions.
