Tax benefits for qualified higher education expenses
Federal and state income tax filers may be eligible for tax credits, tax deductions and exclusions from gross income if you enroll in a U.S. Department of Education eligible institution. See an overview of the main federal and Minnesota income tax provisions intended to help pay for college and other higher education costs.
Federal Tax Benefits
Internal Revenue Service Publication 970 explains income limits, eligibility requirements, qualified expenditures and how to claim benefits. You may qualify for tax benefits from one or more programs, but not all. Many of the programs have income limits.
- American Opportunity Tax Credit: Up to $2,500 for qualified tuition and related expenses for each eligible student.
- Lifetime Learning Tax Credit: An individual income tax credit of 20 percent of the first $10,000 of qualified and related expenses your family pays.
- Tuition and Fees Deduction: Qualified tuition and related expenses may be deducted even if you do not itemize deductions on Schedule A, Form 1040.
- Student Loan Interest Deduction: Up to $2,500 of the interest you paid on student loans on your federal individual income tax return may be deducted.
- Employer Provided Educational Assistance: You may receive up to $5,250 in tax free education benefits from your employer each year.
Minnesota State Tax Benefits
- Student Loan Interest Deduction: A $500 to $1,000 tax credit toward student loan principal or interest payments beginning in 2017. See the Minnesota Department of Revenue for more information.
- Greater Minnesota Internship Tax Credit Program: A repealed tax credit that provided eligible employers a maximum tax credit of up to $2,000 per eligible student intern. The program was repealed in the 2017 Minnesota legislative session and only agreements signed before July 1, 2017 are eligible for the tax credit.
Tax Benefits from Qualified Education Savings Accounts
Earnings are tax-free while invested and tax exempt when withdrawn for qualified higher education expenses. See your financial advisor to determine which plan benefits your family's financial needs:
- Coverdell Education Savings Account
- 529 College Savings Plan
- Traditional or Roth IRA
- U.S. Savings Bonds
Also keep the following in mind as you explore education tax benefits:
- The definitions of qualified college education expenses differ for each program. This means that although one savings or investment option can be used to pay the cost of books or room and board, another might not allow it.
- Each tax benefit option has different phase-in and phase-out periods as well as varying income eligibility requirements.
- Some tax provisions can't be used together in the same tax year, so families may need to choose between incentives.