Federal Tax Credits and Deductions
You do not need to file the FAFSA or get federal financial aid to benefit from these federal tax credits and deductions. These might make college more affordable for you. Talk about these benefits with your parent(s) or guardian(s). Income limits and other restrictions may apply. Consult a tax professional for details.
- Hope Scholarship Tax Credit
Students or their parents may claim up to $1,500 per year, per qualified family member for tuition expenses. This credit only covers the first two years of undergraduate study.
- Lifetime Learning Tax Credit
In 2003, students or their parents may claim 20 percent of tuition expenses up to $2,000 per year, per family. This credit covers all continuing education programs and college study after the first two years.
- State Prepaid Tuition and College Savings Plans (529 Plans)
Parents, relatives or friends can invest after-tax money in a state tuition program for a future student. Money invested grows tax-free as long as it is spent on the student’s higher education.
- Education Savings Accounts (Coverdell IRAs)
Parents, relatives or friends can make annual, nondeductible contributions to education savings accounts. Earnings grow tax-free, and the money is tax-free when withdrawn as long as it is spent on the student’s education.
- Student Loan Interest Deduction
Student borrowers or their families can deduct student loan interest payments from their taxable income.
- Penalty-free IRA Withdrawals
People under the age of 59.5 may withdraw money from a regular or Roth IRA for tuition and expenses without paying the 10 percent early withdrawal penalty.
- Employer-provided Educational Assistance
Employers can provide each worker up to $5,250 per year in tax-free educational benefits.
- New Deduction for Higher Education Expenses
Beginning in 2002, individuals can deduct up to $3,000 in education tuition and expenses even if they do not itemize deductions.