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This section describes several tax benefits for educational expenses, including the Hope Scholarship and Lifetime Learning tax credits, the Tuition and Fees Deduction, the Student Loan Interest Deduction, and employer education assistance.

Tax Benefits for Education

The education tax benefits include:

• Hope Scholarship Tax Credit
  The Hope Scholarship provides a federal income tax credit of up to $2,500 (40% refundable) per student based on the first $4,000 in postsecondary tuition, fees and course materials paid by the taxpayer during the tax year. The Hope Scholarship tax credit is 100% of the first $2,000 and 25% of the second $2,000. The tax credit is limited to the first four years of postsecondary education. The Hope Scholarship tax credit is also known as the American Opportunity Tax Credit (AOTC). The AOTC improvements to the Hope Scholarship will expire at the end of 2017.

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• Lifetime Learning Tax Credit
  The Lifetime Learning provides a federal income tax credit of up to $2,000 per taxpayer based on the first $10,000 in postsecondary tuition and fees paid by the taxpayer during the tax year. The Lifetime learning tax credit is 20% of the first $10,000. The tax credit may be received for an unlimited number of years.

• Student Loan Interest Deduction
  Borrowers of federal and private education loans may deduct up to $2,500 in interest as an above-the-line exclusion from income. This deduction may be taken even if the taxpayer does not itemize.

• Employer Tuition Assistance
  Your employer may provide you with up to $5,250 in employer education assistance benefits for undergraduate or graduate courses tax-free each year. The benefits must have been paid for tuition, fees, books, supplies, and equipment. Travel, lodging and meals are not included. Courses involving sports, games or hobbies are not included, unless they are required as part of a degree program or are related to the business of your employer. (Payments above $5,250 may also be tax-free, if they represent a working condition fringe benefit. This means that if you had paid for the expenses, you would have been able to deduct them as an employee business expense.)

• Tuition and Fees Deduction
  Taxpayers may deduct up to $4,000 in tuition and fee expenses as an above-the-line exclusion from income. This deduction may be taken even if the taxpayer does not itemize. The deduction will expire at the end of 2013.

Comparison Chart

Comparison of Education Tax Benefits
Tax Benefit	Maximum Benefit	Qualified Expenses	2010 Income Phaseouts
Hope Scholarship Tax Credit	$2,500 tax credit per student 100% of first $2,000 25% of second $2,000 (Tax credit is 40% refundable, not subject to AMT)	Tuition, fees and course materials (textbooks)	$80,000 to $90,000 (single) $160,000 to $180,000 (joint)
Lifetime Learning Tax Credit	$2,000 tax credit 20% of first $10,000	Tuition and fees	$50,000 to $60,000 (single) $100,000 to $120,000 (joint)
Tuition and Fees Deduction	$4,000 exclusion from income Reduced to $2,000 in income phaseout band	Tuition and fees	$65,000 to $80,000 (single) $130,000 to $160,000 (joint)
Student Loan Interest Deduction	$2,500 exclusion from income	Student loan interest	$60,000 to $75,000 (single) $120,000 to $150,000 (joint)
Education Bond Program	Exclusion from income of interest on Series EE bonds issued on or after January 1, 1990 and all Series I bonds.	Tuition and fees, or rollover into a 529 plan	$70,100 to $85,100 (single) $105,100 to $135,100 (joint)
Employer Tuition Assistance	$5,250 exclusion from income per student	Tuition, fees, books, supplies, equipment	None
Scholarships	Exclusion from income of amounts spent on qualified expenses if the student is a degree candidate and the scholarship is not payment for services. The full amount is exempt from FICA whether or not the student is a degree candidate.	Tuition, fees, required course-related materials (books, supplies, equipment)	None
529 College Savings Plans	Earnings are tax-deferred. Qualified distributions are excluded from income. The earnings portion of a non-qualified distribution is taxed at the beneficiary's rate and subjected to a 10% tax penalty.	Tuition, fees, books, supplies and equipment, expenses for special needs services. Room and board if enrolled at least half-time.	None

Income phaseouts are the 2010 phaseouts.

Additional Information

Other related programs, such as section 529 plans and Coverdell Education Savings Accounts, can be found in the Saving for College section.

The page concerning Education Tax Benefit Coordination is also helpful when you're trying to maximize your benefits from the various education tax benefits.

Additional information on these education tax benefits can be found in IRS Publication 970, Tax Benefits for Education (PDF). See also IRS Form 8863 for more information on the Hope Scholarship and Lifetime Learning tax credits. Colleges use IRS Form 1098-T (instructions) to report qualified tuition and fees paid to the taxpayer by January 31. The information on IRS Form 1098-T helps you complete IRS Form 8863.

The IRS also publishes frequently asked questions about the Hope Scholarship tax credit.

GAO Analyses of Education Tax Benefits

The US Government Accountability Office has issued three reports concerning education tax benefits:

• GAO-08-717T: Multiple Higher Education Tax Incentives Create Opportunities for Taxpayers to Make Costly Mistakes, May 1, 2008.

• GAO-05-684: STUDENT AID AND POSTSECONDARY TAX PREFERENCES -- Limited Research Exists on Effectiveness of Tools to Assist Students and Families through Title IV Student Aid and Tax Preferences, July 2005.

• GAO-02-751: STUDENT AID AND TAX BENEFITS -- Better Research and Guidance Will Facilitate Comparison of Effectiveness and Student Use, September 2002.