TurboTax / Tax Calculators & Tips / All Tax Guides / College / Sending Kids to College

Sending Kids to College

Updated for Tax Year 2016


OVERVIEW

TurboTax can help you take advantage of tax breaks to ease the financial burden of sending kids to college, including tax credits, tuition deductions, tax-free savings and more.


American Opportunity Tax Credit and Lifetime Learning Credit

The most generous tax breaks for college costs are the American Opportunity Tax Credit and Lifetime Learning Credit, which offset your tax bill dollar-for-dollar compared to a tax deduction that merely reduces the amount of income subject to tax. You can't claim both credits for the same student in the same year, and income limits restrict who can claim them.

For 2016, you can claim the American Opportunity Tax Credit of up to $2,500 if your student is in his or her first four years of college and your income doesn't exceed $160,000 if you are married filing a joint return ($80,000 for single taxpayers).

Above these income levels, the credit is phased out. The credit is based on 100% of the first $2,000 of qualifying college expenses and 25% of the next $2,000, for a maximum possible credit of $2,500.

The American Opportunity Tax Credit can be claimed for as many eligible students as you have in your family.

For example, if you have three kids who are all in their first four years of college, you can potentially qualify for up to $7,500 of American Opportunity Tax Credits. Up to 40% of the American Opportunity Tax Credit amount is refundable. That means you can collect at least some of any credit amount that is left over after your federal income tax bill has been reduced to zero.

The Lifetime Learning credit—which can be as much as $2,000, based on 20% of up to $10,000 of qualifying higher-education expenses—is available for an unlimited number of years for just about any degree or non-degree course. But you can only claim one Lifetime Learning credit per year, no matter how many students you have in your household. For 2016, the income limit for the Lifetime Learning credit is $110,000 if you are married filing a joint return ($55,000 for single taxpayers). Above these income levels, the credit is phased out.

You cannot claim both the American Opportunity credit and the Lifetime Learning credit for the same student in the same year.

Dependency rules

If your income is too high to claim the American Opportunity or Lifetime Learning credit and your student has  taxable income of his or her own, you can elect to forego the dependency exemption ($4,050 for 2016), and let the student claim the credit  on his or her own tax return. The student does not get to claim the dependency exemption, but the value of the education credit may make it preferable for the parent to forfeit the exemption.

Tuition deduction

Another option is a tax deduction of up to $2,000 or up to $4,000 of qualified tuition and mandatory enrollment fees, depending on your income. The above-the-line tuition deduction allows married couples with incomes of $130,000 or less ($65,000 for individuals) to deduct up to $4,000 in qualifying expenses, and those couples earning $130,000 to $160,000 ($65,000 to $80,000 for single taxpayers) to deduct up to $2,000. You do not have to itemize your deductions to claim the tuition and fees deduction, but you cannot claim the deduction in the same year that you claim the American Opportunity or Lifetime Learning credit for the same student’s expenses.

Tapping tax-free college savings

You can take tax-free distributions for qualified education expenses from your child's 529 College Savings Plan or Coverdell Education Savings Account. You can use tax-free withdrawals from Coverdell ESAs and 529 College Savings Plans in the same year as the American Opportunity or Lifetime Learning credits, as long as you don't use them for the same expenses.

Tax-free Savings Bond interest

Interest earned on Series EE or Series I Savings Bonds issued after 1989 can be tax-free if the bond is redeemed and used to pay for qualified college tuition and fees. For 2016, this tax break begins to phase out at $115,750 of modified adjusted gross income (MAGI) for married joint filers ($77,200 for single taxpayers). The tax-free Savings Bond provision cannot be used for expenses that are used to claim  other educational tax breaks such as the American Opportunity or Lifetime Learning credits.

TurboTax can help you take advantage of a wide variety of tax breaks on college costs.

Get every deduction you deserve

TurboTax Deluxe searches more than 350 tax deductions and credits so you get your maximum refund, guaranteed.

For only $54.99$34.99*
Start for Free

Looking for more information?

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.


Security is built into everything we do
Here's how
* Important Offer Details and Disclosures
  • TURBOTAX ONLINE/MOBILE

  • Try for Free/Pay When You File: TurboTax online and mobile pricing is based on your tax situation and varies by product. Free 1040EZ/1040A + Free State offer only available with TurboTax Federal Free Edition; Offer may change or end at any time without notice. Actual prices are determined at the time of print or e-file and are subject to change without notice. Savings and price comparisons based on anticipated price increase expected in March. Special discount offers may not be valid for mobile in-app purchases.
  • TurboTax Self-Employed ExpenseFinder: ExpenseFinder™ is available year round as a feature of QuickBooks Self-Employed (available with TurboTax Self-Employed, see the “QuickBooks Self-Employed Offer with TurboTax Self-Employed” details below.) ExpenseFinder™ expected late January (late February for mobile app). ExpenseFinder™ not available from within TurboTax Self-Employed for people with certain types of expenses and tax situations including paying contractors or employees, home office or vehicle actuals, inventory, self employed health insurance or retirement, asset depreciation, sale of property or vehicles, and farm income. Availability of historical transactions for import may vary by financial institution. Not available for all financial institutions or all credit cards.
  • QuickBooks Self-Employed Offer: File your 2016 TurboTax Self-Employed return by 4/18/17 and receive your complimentary subscription to QuickBooks Self-Employed until 4/30/18. Activation required. Log in to QuickBooks Self-Employed by 7/15/17 via mobile app or at https://selfemployed.intuit.com/turbotax; e-mail address used for activation and log-in. Offer valid only for new QuickBooks Self-Employed customers. See QuickBooks.com for price comparison.
    • When you use TurboTax Self-Employed to file your 2017 taxes, you will have the option to renew your QuickBooks Self-Employed subscription. If you do not file with TurboTax Self-Employed by 4/18/18, you will have the option of renewing your QuickBooks Self-Employed subscription by 4/30/18 for another year at the then-current annual subscription rate. You may cancel your subscription at any time from within the QuickBooks Self-Employed billing section.
  • Pays for itself: In order to pay for the price of TurboTax Self-Employed, you will need at least $600 in deductible business expenses. This calculation is based on the self-employment tax income rate for tax year 2016.
  • Anytime, anywhere: Internet access required; standard message and data rates apply to download and use mobile app.
  • Fastest refund possible: Fastest tax refund with e-file and direct deposit; tax refund time frames will vary.
  • Pay for TurboTax out of your federal refund: $X.XX Refund Processing Service fee applies to this payment method. Prices are subject to change without notice.
  • TurboTax Expert Help, Tax Advice and SmartLook: Included with Deluxe, Premier and Self-Employed (via phone or SmartLook); not included with Federal Free Edition. Feature availability varies by device. State tax advice is free. Service, experience levels, hours of operation and availability vary, and are subject to restriction and change without notice.
  • #1 best-selling tax software: Based on aggregated sales data for all tax year 2015 TurboTax products.
  • Most Popular: TurboTax Deluxe is our most popular product among TurboTax Online users with more complex tax situations.
  • CompleteCheck: Covered under the TurboTax accurate calculations and maximum refund guarantees.
  • TURBOTAX CD/DOWNLOAD SOFTWARE

  • TurboTax CD/Download products: Price includes tax preparation and printing of federal tax returns and free federal e-file of up to 5 federal tax returns. Additional fees apply for e-filing state returns. E-file fees do not apply to New York state returns. Savings and price comparison based on anticipated price increase expected in March. Prices subject to change without notice.
  • Fastest refund possible: Fastest tax refund with e-file and direct deposit; tax refund time frames will vary.
  • Pay for TurboTax out of your federal refund: $X.XX Refund Processing Service fee applies to this payment method. Prices are subject to change without notice. This benefit is available with TurboTax Federal products except TurboTax Business.
  • About our TurboTax Product Experts: Customer service and product support vary by time of year.
  • About our credentialed tax experts: Live tax advice via phone is included with Premier and Home & Business; fees apply for Basic and Deluxe customers. State tax advice is free. Service, experience levels, hours of operation and availability vary, and are subject to restriction and change without notice. Not available for TurboTax Business customers.
  • #1 best-selling tax software: Based on aggregated sales data for all tax year 2015 TurboTax products.
  • Data Import: Imports financial data from participating companies. Quicken and QuickBooks import not available with TurboTax installed on a Mac. Imports from Quicken (2015 and higher) and QuickBooks Desktop (2011 and higher); both Windows only. Quicken import not available for TurboTax Business. Quicken products provided by Quicken Inc., Quicken import subject to change.