IRS Press Release - Sept. 2, 2003
Worried about the rising cost of tuition? Well, the IRS has good news for students that may provide you with a little extra money while you're in school and even after graduation.
Students are entitled to as much as $5,250 in employer-provided educational assistance -- tax free! This tax benefit applies to both undergraduate- and graduate-level courses.
Some people may deduct up to $3,000 of qualified higher education expenses, even if they don't itemize deductions on Form 1040, Schedule A. This tuition and fees deduction is scheduled to last through 2005.
The maximum Lifetime Learning Credit doubled in 2003, to $2,000. The credit is 20% of the first $10,000 of qualified expenses.
You may be able to deduct up to $2,500 of interest paid on student loans for higher education, regardless of the age of the loan. The amount of the deduction depends on your income, whether you claimed the tuition and fees deduction, and whether you excluded amounts received from a qualified tuition program.
Inflation adjustments may raise the income levels for phase outs that apply to the education credits and the education savings bond program. For married couples filing jointly and qualified widow(er)s, the education credit phaseout begins at $83,000 in 2003 and the savings bond phaseout, at $87,750. For others, the figures are $41,000 and $58,500, respectively. (Married persons filing separately cannot claim these benefits.)
Saving up for school? Changes that took effect in 2002 have made it easier to contribute to Coverdell education savings accounts (ESAs) or qualified tuition programs (QTPs) and have increased the tax benefits on distributions from these accounts.
To see what works for you, do your homework. Read up on income limits, phase outs, qualifying expenses and more.
Check out Publication 970 (PDF 304K), Tax Benefits for Education, to learn about some smart ways to save on your taxes.