DEDUCTING COLLEGE TUITION PART THREE
January 20, 2021 - Douglas Myser
Deducting college tuition part three. Many people with IRS tax debts come to us and want to know, can we deduct out children's college expenses and tuition on our taxes. This is a three part series on ways to do that. One way is with employer paid educational assistance. Up to $5250 is employer paid educational assistance can be excluded from income. Qualified expenses include tuition and fees, books, supplies, and equipment. This tax benefit is available for an unlimited number of years. The student must be the employee, not the employee's spouse or dependents. The employee does not need to be seeking a degree or certificate. There are no income phaseouts. The Tuition Gift-Tax Exclusion. Tuition paid directly to an educational institution is not subject to gift taxes. However, direct payments of tuition may reduce the student's eligibility for need based financial aid. THis tax break can be claimed for an unlimited number of years. There are no income phaseouts. Deducting college tuition part three.
Qualified scholarships. Scholarships, grants and fellowships that are used to pay for tuition, fees and course materials (books, supplies and equipment) are excluded from income if the student is seeking a degree or certificate. Tuition waivers are also eligible. The money must not be a fee for services provided by the student, with a few exceptions, such as teaching and research assistantships. There are no income phaseouts. Education Savings Bond Program. Interest on series EE bonds issued in 1990 or a later year and all Series 1 bonds is excluded from income if it is used to pay for tuition and fees, or rolled over into a 529 college savings plan, prepaid tuition plan or Coverdell education savings account. The income phaseouts in 2021 are $83,200 to $98,200 (single) and $124,800 to $154,800 (married filing jointly). Taxpayers who file as married filing separately are not eligible. The income phaseouts are adjusted annually for inflation. The Coverdell Education Savings Accounts can also be used.