Many Families Fail to Claim Higher Education Tax Benefits

Written by on March 10, 2014 in News

Des Moines, IA, March 10, 2014 – The Iowa College Student Aid Commission (Iowa College Aid) would like to remind Iowa families paying college costs or repaying federal student loans to take advantage of federal higher education tax benefits to reduce their tax obligations. Eligible students and families can save thousands of dollars by taking advantage of tax credits, which reduce federal income taxes owed and deductions, which reduce a taxpayer’s taxable income. However, according to the U.S. Government Accountability Office, about 14 percent, of tax filers (1.5 million out of 11 million eligible returns) fail to claim a credit or deduction for which they appear were eligible.

“The most recent analysis found that tax filers left behind approximately $726 million worth of higher education tax benefits in 2009, an average of $466 per person,” stated Karen Misjak, executive director of Iowa College Aid. “We want to make sure that Iowans are aware of the money-saving tax benefits for students and families who paid college expenses last year. Iowa College Aid encourages all Iowa families who incurred higher education expenses during 2013 to explore the tax credits and deductions available.”

Available higher education tax benefits for the 2013 tax year include:
American Opportunity Tax Credit. This credit is available to a broad range of taxpayers, including many with higher incomes and those who owe no tax. Many of those eligible qualify for the maximum annual credit of $2,500 per student for out-of-pocket educational expenses including tuition, fees and required course material while enrolled in a program leading to a degree, certificate or other recognized educational credential. Up to 40 percent, or $1,000 of the credit is refundable if the credit is more than the amount of taxes owed. This credit, which reduces the amount of income tax owed, can be claimed based on the same student’s expenses for no more than four tax years.

Lifetime Learning Credit. This credit allows taxpayers to reduce their federal income tax by up to $2,000 for qualified education expenses paid for all students enrolled in eligible educational institutions. Unlike the American Opportunity Tax Credit, the Lifetime Learning Credit is not refundable. This means that it can reduce a filer’s tax to zero, but if the credit is more than taxes owed, the excess will not be refunded. This credit can be used annually for all years of postsecondary education and for courses to acquire or improve job skills. Taxpayers cannot claim both a Lifetime Learning Credit and an American Opportunity Credit for the same student in the same year.

Student Loan Interest Deduction. This deduction enables eligible student loan borrowers to reduce their taxable income, up to a maximum of $2,500, based on the amount of student loan interest paid during the tax year. Student loan interest is interest that was paid during the year on a qualified student loan. It includes both required and voluntary interest payments.

Tuition and Fees Deduction. Tax payers can reduce the amount of their income subject to tax by up to $4,000 for qualified educational expenses paid in 2013 including tuition, fees and amounts required to be paid to the educational institution for course-related books, supplies and equipment.

For more information on money-saving tax benefits available to taxpayers that may help reduce overall cost of a college education, Iowa College Aid also provides a Higher Education Tax Benefits fact sheet. Families can also reference the IRS Publication 970, Tax Benefits for Education. Iowa College Aid recommends students and families consult with a professional tax advisor or the IRS to determine eligibility for the tax benefits. In addition, more information about Iowa College Aid and its products and services that help Iowa families plan, prepare and pay for college can be found at

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