Which College Expenses Qualify for Education Tax Benefits?

Kathryn FlynnBy Kathryn FlynnBy Savingforcollege.com

The federal government offers a number of tax incentives to help offset college costs. These include tax-advantaged savings vehicles, college tax credits and tax deductions for qualified education expenses.

Tuition and fees always count as a qualified expense for these tax incentives, but other expenses, such as room and board and transportation, may or may not be covered depending on the education tax benefit.

In some cases, you may take advantage of multiple tax incentives as long as there is no double-dipping. Different qualified expenses must be used to justify each education tax benefit.

The following table highlights common education tax breaks and what counts as a qualified expense for each.

Tax Incentive

Qualified Education Expenses

529 plan

Contributions are made with after-tax dollars, and earnings grow tax-deferred and can be withdrawn tax-free to pay for college expenses and up to $10,000 per year in K-12 tuition. In addition to federal tax benefits, residents in over 30 states are eligible for a state income tax benefit for 529 plan contributions.

Expenses incurred by the beneficiary related to attendance or enrollment at an eligible college or university:

  • Tuition and fees
  • Books, supplies and equipment
  • Special needs services
  • Room and board if the student is enrolled at least half-time
  • Computers, internet access and related services

Expenses incurred by the beneficiary in connection with enrollment or attendance at an eligible elementary or secondary school:

  • Tuition

Coverdell ESA

Families who meet certain income requirements may contribute up to $2,000 per year per beneficiary. The investment grows tax-deferred and earnings can be withdrawn tax-free to pay for qualified higher education expenses and qualified elementary and secondary expenses. Funds in a Coverdell ESA must be spent before the beneficiary turns age 30.

Expenses incurred by the beneficiary related to enrollment or attendance at an eligible college or university:

  • Tuition and fees
  • Books, supplies and equipment
  • Special needs services
  • Room and board if the student is enrolled at least half-time
  • Computers, internet access and related services

Expenses incurred by the beneficiary in connection with enrollment or attendance at an eligible elementary or secondary school:

  • Tuition and fees
  • Books, supplies and equipment
  • Academic tutoring
  • Special needs services for a special needs beneficiary

Expenses incurred by the beneficiary that are required or provided by an eligible K-12 school in connection with enrollment or attendance:

  • Room and Board
  • Uniforms
  • Transportation
  • Supplementary items and services
Elementary and secondary education expenses also include computer technology or equipment or Internet access and related services, if they are to be used by the beneficiary and the beneficiary’s family during any of the years the beneficiary is in school.

U.S. Savings Bonds

Families who meet certain income requirements may deduct interest earned on qualified U.S. Savings Bonds when redeemed to pay for qualified education expenses.

Expenses incurred by the bond owner, their spouse or a dependent:

  • Tuition and fees required to enroll or attend an eligible education institution
  • Contributions to a 529 plan or Coverdell ESA

Roth and Traditional IRAs

Qualifying taxpayers may contribute up to $6,000 ($7,000 if over age 50) in 2019 to a Roth or Traditional IRA.

Both types of IRAs impose a 10% early withdrawal penalty when earnings in the account are withdrawn before the account owner turns age 59 ½. However, the early withdrawal penalty is waived when distributions are used to pay for qualified higher education expenses.

Tuition and fees required for enrollment or attendance at an eligible college or university

American Opportunity Tax Credit (AOTC)

Qualifying parents may claim an annual tax credit for the 100% of the first $2,000 and 25% of the next $2,000 of a dependent child’s qualified education expenses, for a maximum $2,500 tax credit. Up to 40% of the AOTC is refundable for eligible taxpayers.

Expenses incurred by a dependent student that are required for enrollment or attendance at an eligible college or university:

  • Tuition and fees
  • Course materials including required textbooks, supplies and equipment

Lifetime Learning Tax Credit

Eligible taxpayers to claim an annual tax credit of up to 20% of the first $10,000 spent on qualified education expenses for themselves, a spouse and dependent children.

Expenses incurred by a taxpayer, their spouse and their dependent children required for an enrollment in a course at an eligible college or university:

  • Tuition and fees
  • Fees or expenses for required textbooks, supplies and equipment that are paid to the eligible institution

Student Loan Interest Deduction

Taxpayers may deduct interest paid on a qualified student loan for themselves, their spouse or their dependent when the loan was taken out.

The loan must have been used solely to pay for qualified higher education expenses

  • Tuition and fees
  • Room and board up to the amount of the college’s cost of attendance figures
  • Books, supplies and equipment
  • Transportation
  • Other necessary expenses

Tax-Free Scholarship

Scholarships and fellowship grants are excluded from income when the recipient is a pursuing a degree at an eligible institution and the scholarship does not represent payment for teaching, research or other services.

Portions of a scholarship used to pay for tuition and related expenses of a degree candidate, such as:

  • Tuition and fees required to enroll or attend an eligible college or university
  • Expenses required for the course at an eligible institution:
  • Fees
  • Books
  • Supplies and equipment

Employer-Provided Educational Assistance

Employees may deduct up to $5,250 in employer-provided educational assistance per year.

Any form of instruction or training that improves or develops an employee’s capabilities:

  • Tuition and fees
  • Books
  • Supplies and equipment

Business Deduction for Work-Related Education

Self-employed individuals, qualifying performing artists, fee-based state or local government officials or disabled individuals may deduct work-related education expenses. The education must be mandated by law or industry regulations or maintain or improve current job skills.

Work-related education expenses that are required for the employee to keep their current job, salary or status:

  • Tuition and fees
  • Books
  • Supplies
  • Lab fees
  • Certain transportation and travel costs
  • Other education expenses that are part of an educational program


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