Why Indy
Free Resources
indy university
Start for free

Tuition and Fees Deduction: Are Qualified Education Expenses Tax Deductible?

Apr 16, 2023
(updated: Dec 20, 2023)
Max 5 min read

Every year, it seems like college costs are increasing. For the 2022–2023 academic year, an out-of-state student attending a four-year public college would have to pay $28,240 in tuition, fees, housing, and board (on average). Approximately ten years ago, an in-state student would have spent $15,180 on average (in 2016 currency) for the identical costs.

Whether you are now a freelancer, or you want to keep learning and bettering yourself, there isn't much you can do about the escalating expense of education. However, there are a few tax benefits you can take into consideration to lessen the burden. You can get a financial advisor to assist you in tailoring a tax plan to your educational objectives and requirements. Or, even better, you can simply use Indy’s finance tools to keep better track of all the payments, select deadlines and make scheduled payments to never miss a payment!

The Deduction for Tuition and Fees

Unfortunately, since January 1, 2021, educational expenses are not deductible anymore (not even work-related education expenses).

However, there is a cap of $4,000 for taxpayers who paid qualified education expenses in 2018, 2019, and 2020.

If you paid those qualified education expenses for a college student, for yourself, a dependant, or your spouse, you might be eligible for a tax deduction. Tuition and other education-related expenses that students must pay in order to attend a certain institution are included in the category of a qualified education expense. However, you cannot deduct costs that were covered by a scholarship or other tax-free reward.

If you and your spouse are filing separate tax returns or if you were a nonresident alien for a portion of the tax year, you are not eligible for the tuition and fees deduction. If your income exceeds a specific level, you are also ineligible to receive the tax deduction.

There are also a few other restrictions when it comes to claiming deductions for tuition and fees. For example, you can only claim the deduction if you're paying for yourself or a dependent. You also can't claim the deduction if someone else is claiming you as a dependent on their taxes. Additionally, you must be enrolled in an eligible educational institution in order to claim the deduction.

So how much can you actually claim? The answer depends on a few factors, including your taxable income and whether or not you're itemizing your deductions. If you're eligible to itemize deductions and your modified adjusted gross income is less than $80,000 (or $160,000 if filing jointly), you can claim up to $4,000 as a deduction for qualified education expenses. If your AGI is greater than $80,000 (or $ 160,000 if filing for a joint return), you can claim up to $2,000 from your tax bill.

What Education Expenses Count as Qualified Education Expenses?

Only specific kinds of education expenses will be taken into account when you apply for credits like the American Opportunity Credit or the Lifetime Learning Credit. Although tuition and fees are frequently seen as legitimate educational expenditures, other factors may also come into play.

American Opportunity Credit

You can include costs for books, supplies, and equipment (including computers if they are necessary as a condition of enrollment) in addition to tuition and fees, even if you did not pay the school directly.

*Even if you had no income or tax liability the previous year, you are still eligible to receive up to $1,000, or 40% of the American Opportunity Tax Credit. For instance, if you were eligible for a refund, this credit might raise your payout by up to $1,000. The American Opportunity Credit is regarded as a fantastic education tax break for students and their parents as a result.

Lifetime Learning Credit

Costs for course-related materials, supplies, and equipment (including computers) that must be paid to the educational institution can be included with tuition and fees. Although there is no longer a deduction for tuition and fees, beginning of 2021, the income limitations have been raised to allow for more students to qualify for the lifelong learning credit.

What Kind of Costs Are Not Qualifying Expenses?

Insurance, medical costs, transportation costs, and living expenses are typically not considered to be acceptable educational costs for an education credit. Similarly, unless they are a requirement for a degree program, non-credit courses are not considered qualifying educational expenses.

The Interest Deduction for Student Loans

The student loan interest deduction is a helpful tax break for recent college graduates and their parents. For your 2023 taxes, this deduction is worth the whole interest you paid on your student loans for higher education expenses, up to a maximum deduction of $2,500. The following requirements must be met in order for you to be eligible for the deduction:

  • You paid interest in 2023
  • The program must result in a degree, certificate, or other recognized certification, and the eligible student must have been enrolled at least half-time at an approved school.

Keep all of your records!

The student will get a Form 1098-T from the school (by mail or online portal), which will include all the educational expenses. Additionally, you are permitted to utilize payment receipts or any other sort of statement that attests to the payment of legal educational costs.

So, whether you are freelancing as a means to pay for your school, or simply paying off your debts, your school needs to provide you with a tuition statement detailing the annual educational costs you paid. Then, you can use that form to submit the correct amounts on your tax return to claim an education tax credit or deduction. 

Plus, if you are paying back your student loans, and paid over $600 in interest, your servicer will issue you a Form 1098-E. With that, you should be able to deduct your student loan interest from your taxable income.

But, to be sure that you are paying everything on time, and the amounts your payments are, the best course of action is to simply use Indy’s tools. Indy helps you save time and is also a business expense, meaning you can deduct it from your taxable income. Sweet!

Get started today!

Get the tools to manage your entire freelance business, free online courses to accelerate your growth, and join a community of freelancers just like you.
Mail icon
Join our
affiliate program
Get 90% commission for Indy Pro sign-ups via your affiliate link!
Want more freelance tips?
Crush freelance struggles with weekly tips delivered to your inbox.