Tax Benefits for College Students and Parents

Paying for college is an expensive venture, but did you know you can take advantage of special tax breaks just for college students and their parents? These benefits come in the form of tax credits and deductions when you file your income tax return. What’s the difference? A credit reduces the amount of income tax you have to pay. A deduction reduces the amount of your income that is taxed, which also typically lessens your tax bill. In other words, you could get a bigger tax refund.

Filing Your Taxes

Let’s back up a bit and start with the basics of filing your taxes. If you’re wondering if you should bother filing because you only work over the summer or a few hours part-time during the school year, the answer is YES! You aren’t required to file if your income is under $13,850 for tax year 2023, but you may be able to take advantage of those credits and deductions we mentioned.

Before you start, ask your parents if they will be claiming you as a dependent. Typically your parents can claim you as a dependent if they provide more than half of your support, which is often the case for college students. If they plan to claim you on their taxes, you will need to answer “yes” on your return when you are asked if someone else can claim you as a dependent.

Next you’ll need to gather your W2s and a list of your college expenses (tuition bills, credit card bills from textbooks, etc.) You can file with a paper form or online – the IRS offers “Free File” options. It might be a good idea to sit down with your parents while you complete your return in case you have any questions, especially if this is the first time you’ve filed your own tax return.

Below are some of the education credits and deductions that may be available to you or your parents:

The American Opportunity Tax Credit

The American Opportunity Tax Credit (AOTC) allows students to claim up to $2,500 of qualified college expenses for their first four years of post-secondary education. This includes tuition, fees, textbooks, supplies and other equipment. To be eligible for AOTC, the student must:

Be pursuing a degree or other recognized education credential
Be enrolled at least half time for at least one academic period beginning in the tax year
Not have finished the first four years of higher education at the beginning of the tax year
Not have claimed the AOTC or the former Hope credit for more than four tax years
Not have a felony drug conviction at the end of the tax year

You must have received a Form 1098-T Tuition Statement from an eligible educational institution.

The Lifetime Learning Credit

The Lifetime Learning Credit (LLC) allows students or parents to claim a credit of up to $2,000 for qualified education expenses. There is no limit on the number of years this credit can be claimed, but you can only claim this or the American Opportunity Credit. The Lifetime Learning Credit may be useful to graduate students or those who are not working toward a degree.

To claim the LLC, you must meet all three of the following criteria:

You, your dependent or a third party pay qualified education expenses for higher education.
You, your dependent or a third party pay the education expenses for an eligible student enrolled at an eligible educational institution.
The eligible student is yourself, your spouse or a dependent you listed on your tax return.

Student Loan Interest Deduction

Once you are making payments on a qualified student loan (usually after you graduate), there is a special deduction allowed for the interest you’ve paid on your loan in the past year. Your lender(s) should provide a statement in the mail or electronically each January that outlines the interest you’ve paid. This deduction can reduce the amount of your income subject to tax by up to $2,500.

If you have questions, or you’re not sure if you’re eligible for these credits and deductions, you can use the IRS’s Interactive Tax Assistant to find out if you may be eligible. You can also read the full descriptions of the credits and deductions, including income limits, on their website.

This article was updated March 4, 2024. For specific tax advice, contact a tax professional.