Graduate school isn't cheap, but graduate students do get a break on their final tax bill. The Internal Revenue Service offers graduate students a variety of tax credits and deductions that lower their final tax liability. Each credit and deduction has different restrictions regarding income and qualified expenses, so pay attention to the fine print.
Lifetime Learning Credit
The IRS offers two educational credits to students: the American Opportunity Tax Credit and the Lifetime Learning Credit. Since the American Opportunity credit only can be applied for the first four years of education, most graduate students can't claim it. However, there aren't any annual restrictions on claiming the Lifetime Learning credit. Only graduate students with a modified adjusted gross income of $63,000 or less can claim this credit. Eligible grad students will receive 20 percent of the first $10,000 of tuition expenses as a tax credit. For example, if you paid $10,000 in tuition during the tax year, the credit will net you a $2,000 tax credit.
Tuition and Fees Deduction
If your income level precludes you from claiming an educational tax credit, you still can deduct the cost of tuition and fees on your tax return. Taxpayers can deduct tuition and mandatory enrollment fees for any post-high school accredited educational institution from their adjusted gross income. Individuals with a modified adjusted gross income less than $65,000 in 2014 can receive a $4,000 deduction. Those with a modified adjusted gross income between $65,001 and $80,000 can deduct up to $2,000.
Unfortunately, a taxpayer with a modified adjusted gross income over $80,000 can't claim the tuition and fees deduction nor the lifetime learning credit. However, you may be able to deduct educational expenses if they were work-related. Grad students can deduct work-related educational expenses. To qualify, the education must help you improve your job skills or be required by your employer. These expenses are subject to 2 percent of your adjusted gross income. This means that if your adjusted gross income is $100,000, you can't deduct the first $2,000 of expenses.
Student Loan Deduction
Grad students who took out loans to finance their education get a break on their taxes. Taxpayers can deduct the interest they paid during the year on student loans, up to $2,500. If you paid over $600 in interest expense during the year, you should receive a Form 1098-E from your lender. Form 1098-E lists exactly how much you paid in interest. However, you can still deduct student loan interest expense even if you paid less than $600. Contact your lender and ask for a loan statement that lists the total interest you paid over the year.
- IRS.gov: Lifetime Learning Credit
- IRS.gov: Educational Expenses
- IRS.gov: Student Loan Interest Deduction
- IRS.gov: Tuition and Fees Deduction
- Internal Revenue Service. "Education Credits: Questions and Answers." Accessed Feb. 7, 2020.
- Internal Revenue Service. "Lifetime Learning Credit." Accessed Feb. 7, 2020.
- Internal Revenue Service. "American Opportunity Tax Credit." Accessed Feb. 7, 2020.
- Internal Revenue Service. "Education Credits--AOTC and LLC." Accessed Feb. 7, 2020.
- Internal Revenue Service. "Education Benefits -- No Double Benefits." Accessed Feb. 7, 2020.
- Internal Revenue Service. "News Release: American Opportunity Tax Credit." Accessed Feb. 7, 2020.
- Congressional Research Service. "Overview of the Relationship between Federal Student Aid and Increases in College Prices," Page 1. Accessed Feb. 7, 2020.
Based in San Diego, Calif., Madison Garcia is a writer specializing in business topics. Garcia received her Master of Science in accountancy from San Diego State University.