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Department of the Treasury
Internal Revenue Service
Publication 970
Cat. No. 25221V
Tax Benefits
for Education
For use in preparing
2023 Returns
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Contents
Future Developments ....................... 2
What's New ............................... 2
Reminders ............................... 2
Introduction .............................. 3
Chapter 1. Scholarships, Fellowship Grants,
Grants, and Tuition Reductions ............ 5
Scholarships and Fellowship Grants ........... 5
Other Types of Educational Assistance ......... 7
Chapter 2. American Opportunity Credit ....... 9
Can You Claim the Credit? ................. 11
What Expenses Qualify? .................. 12
Who Is an Eligible Student? ................ 18
Who Can Claim a Dependent's Expenses? ..... 19
Figuring the Credit ...................... 20
Claiming the Credit ...................... 22
Chapter 3. Lifetime Learning Credit .......... 22
Can You Claim the Credit? ................. 23
What Expenses Qualify? ................. 24
Who Is an Eligible Student? ............... 28
Who Can Claim a Dependent's Expenses? .... 29
Figuring the Credit ...................... 29
Claiming the Credit ...................... 30
Chapter 4. Student Loan Interest Deduction ... 30
Student Loan Interest Defined .............. 31
Can You Claim the Deduction? ............. 34
Figuring the Deduction ................... 34
Claiming the Deduction ................... 35
Chapter 5. Student Loan Cancellations and
Repayment Assistance .................. 37
Loan for Postsecondary Educational
Expenses ........................... 37
Student Loan Repayment Assistance ......... 38
Chapter 6. Coverdell Education Savings
Account (ESA) ........................ 38
What Is a Coverdell ESA? ................. 39
Contributions .......................... 40
Rollovers and Other Transfers .............. 43
Distributions ........................... 44
Chapter 7. Qualified Tuition Program (QTP) .... 50
What Is a QTP? ........................ 50
How Much Can You Contribute? ............ 51
Recontribution of Refunded Amounts ......... 51
Are Distributions Taxable? ................. 51
Rollovers and Other Transfers .............. 53
Chapter 8. Education Exception to Additional
Tax on Early IRA Distributions ............ 54
Who Is Eligible? ........................ 54
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Figuring the Amount Not Subject to the 10%
Tax ............................... 55
Reporting Early Distributions ............... 55
Chapter 9. Education Savings
Bond Program ........................ 56
Who Can Cash in Bonds Tax Free? .......... 56
Figuring the Tax-Free Amount .............. 57
Claiming the Exclusion ................... 57
Chapter 10. Employer-Provided Educational
Assistance ........................... 58
Chapter 11. Business Deduction for
Work-Related Education ................. 58
Qualifying Work-Related Education .......... 59
What Expenses Can Be Deducted? .......... 62
How To Treat Reimbursements ............. 64
Deducting Business Expenses ............. 65
Recordkeeping ......................... 66
Chapter 12. How To Get Tax Help ............ 66
Appendix ............................... 71
Glossary ................................ 74
Index .................................. 77
Future Developments
For the latest information about developments related to
Pub. 970, such as legislation enacted after it was
published, go to IRS.gov/Pub970.
What's New
Student loan interest deduction. For 2023, the amount
of your student loan interest deduction is gradually re-
duced (phased out) if your MAGI is between $75,000 and
$90,000 ($155,000 and $185,000 if you file a joint return).
You can’t claim the deduction if your MAGI is $90,000 or
more ($185,000 or more if you file a joint return). See
chapter 4.
Education savings bond program. For 2023, the
amount of your education savings bond interest exclusion
is gradually reduced (phased out) if your MAGI is between
$91,850 and $106,850 ($137,800 and $167,800 if you file
a joint return). You can't exclude any of the interest if your
MAGI is $106,850 or more ($167,800 or more if you file a
joint return). See chapter 9.
Business deduction for work-related education. Gen-
erally, if you claim a business deduction for work-related
education and you drive your car to and from school, the
amount you can deduct for miles driven from January 1,
2023, through December 31, 2023, is 65.5 cents a mile.
See chapter 11.
Reminders
Form 1098-T, Tuition Statement. When figuring an edu-
cation credit, use only the amounts you paid and are
deemed to have paid during the tax year for qualified edu-
cation expenses. In most cases, the student should re-
ceive Form 1098-T from the eligible educational institution
by January 31, 2024. However, the amount on Form
1098-T might be different from the amount you actually
paid and are deemed to have paid. In addition, Form
1098-T should give you other information for that institu-
tion, such as adjustments made for prior years; the
amount of scholarships or grants, reimbursements, or re-
funds; and whether the student was enrolled at least
half-time or was a graduate student. The eligible educa-
tional institution may ask for a completed Form W-9S, Re-
quest for Student's or Borrower's Taxpayer Identification
Number and Certification, or similar statement to obtain
the student's name, address, and taxpayer identification
number.
Form 1098-T requirement. To be eligible to claim the
American opportunity credit or lifetime learning credit, the
law requires a taxpayer (or a dependent) to have received
Form 1098-T from an eligible educational institution,
whether domestic or foreign.
However, you may claim a credit if the student doesn't
receive Form 1098-T because the student's educational
institution isn't required to furnish Form 1098-T to the stu-
dent under existing rules (for example, if the student is a
qualified nonresident alien, has qualified education expen-
ses paid entirely with scholarships, has qualified educa-
tion expenses paid under a formal billing arrangement, or
is enrolled in courses for which no academic credit is
awarded). If a student's educational institution isn't re-
quired to provide Form 1098-T to the student, you may
claim a credit without Form 1098-T if you otherwise qual-
ify, can demonstrate that you (or a dependent) were enrol-
led at an eligible educational institution, and can substan-
tiate the payment of qualified tuition and related expenses.
You may also claim a credit if the student attended an
eligible educational institution required to furnish Form
1098-T but the student doesn’t receive Form 1098-T be-
fore you file your tax return (for example, if the institution is
otherwise required to furnish Form 1098-T and doesn’t
furnish it or refuses to do so) and you take the following re-
quired steps: After January 31, 2024, but before you file
your 2023 tax return, you or the student must request that
the educational institution furnish Form 1098-T. You must
fully cooperate with the educational institution's efforts to
gather the information needed to furnish Form 1098-T. You
must also otherwise qualify for the benefit, be able to
demonstrate that you (or a dependent) were enrolled at an
eligible educational institution, and substantiate the pay-
ment of qualified tuition and related expenses.
Educational institution's EIN required. To claim the
American opportunity credit, you must provide the educa-
tional institution's employer identification number (EIN) on
your Form 8863. You should be able to obtain this informa-
tion from Form 1098-T or the educational institution. See
chapter 2.
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Form 8862 may be required. If your American opportu-
nity credit was denied or reduced for any reason other
than a math or clerical error for any tax year beginning af-
ter 2015, you must attach a completed Form 8862, Infor-
mation To Claim Certain Credits After Disallowance, to
your tax return for the next year for which you claim the
credit. See chapter 2.
Ban on claiming the American opportunity credit. If
you claim the American opportunity credit even though
you're not eligible, you may be banned from claiming the
credit for 2 or 10 years depending on your conduct. See
chapter 2.
Taxpayer identification number (TIN) needed by due
date of return. If you haven’t been issued a TIN by the
due date of your 2023 return (including extensions), you
can't claim the American opportunity credit on either your
original or an amended 2023 return. Also, the American
opportunity credit isn't allowed on either your original or an
amended 2023 return for a student who hasn’t been is-
sued a TIN by the due date of your return (including exten-
sions). See chapter 2.
Higher education emergency grants. Emergency fi-
nancial aid grants under the following are not included in
your gross income.
•
The CARES Act.
•
The Coronavirus Response and Relief Supplemental
Appropriations Act, 2021.
•
The American Rescue Plan Act of 2021.
Also, for purposes of the American opportunity tax
credit (see chapter 2) and lifetime learning credit (see
chapter 3), a student does not reduce an amount of quali-
fied tuition and related expenses by the amount of an
emergency financial aid grant. For more information, see
Higher Education Emergency Grants Frequently Asked
Questions.
Coordination with Pell grants and other scholarships
or fellowship grants. It may benefit you to choose to in-
clude otherwise tax-free scholarships or fellowship grants
in income. This may increase your education credit and
lower your total tax or increase your refund. See Coordina-
tion with Pell grants and other scholarships in chapter 2
and chapter 3.
Student loan interest deduction. You can’t deduct as
interest on a student loan any interest paid by your em-
ployer after March 27, 2000, and before January 1, 2026,
under an educational assistance program. See chapter 4.
Student loan forgiveness. The American Rescue Plan
Act of 2021 modified the treatment of student loan forgive-
ness for discharges in 2021 through 2025. See chapter 5.
Achieving a Better Life Experience (ABLE) account.
This is a savings account for individuals with disabilities
and their families. Distributions are tax free if used to pay
the beneficiary's qualified disability expenses, which may
include education expenses. For more information, see
Pub. 907, Tax Highlights for Persons With Disabilities.
Estimated tax payments. If you have taxable income
from any of your education benefits and the payer doesn't
withhold enough income tax, you may need to make esti-
mated tax payments. For more information, see Pub. 505,
Tax Withholding and Estimated Tax.
Employer-provided educational assistance benefits.
Employer-provided educational assistance benefits in-
clude payments made after March 27, 2020, and before
January 1, 2026, for principal or interest on any qualified
education loan you incurred for your education. See chap-
ter 10.
Miscellaneous itemized deductions. For tax years be-
ginning after 2017 and before 2026, you no longer deduct
work-related education expenses as a miscellaneous
itemized deduction subject to a 2%-of-adjusted-gross-in-
come floor. See chapter 11.
Photographs of missing children. The Internal Reve-
nue Service is a proud partner with the National Center for
Missing & Exploited Children® (NCMEC). Photographs of
missing children selected by the Center may appear in
this publication on pages that would otherwise be blank.
You can help bring these children home by looking at the
photographs and calling 1-800-THE-LOST
(1-800-843-5678) if you recognize a child.
Introduction
This publication explains tax benefits that may be availa-
ble to you if you are saving for or paying education costs
for yourself or, in many cases, another student who is a
member of your immediate family. Most benefits apply
only to higher education.
What is in this publication. Chapter 1 explains the tax
treatment of various types of educational assistance, in-
cluding scholarships, fellowship grants, and tuition reduc-
tions.
Two tax credits for which you may be eligible are ex-
plained in chapter 2 and chapter 3. These benefits, which
reduce the amount of income tax you may have to pay,
are:
•
The American opportunity credit, and
•
The lifetime learning credit.
Nine other types of benefits are explained in chapters 4
through 11. These benefits, which reduce the amount of
income tax you may have to pay, are:
•
Deduct student loan interest;
•
Receive tax-free treatment of a canceled student loan;
•
Receive tax-free student loan repayment assistance;
•
Establish and contribute to a Coverdell education sav-
ings account (ESA), which features tax-free earnings;
•
Participate in a qualified tuition program (QTP), which
features tax-free earnings;
•
Take early distributions from any type of individual re-
tirement arrangement (IRA) for education costs with-
out paying the 10% additional tax on early distribu-
tions;
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•
Cash in savings bonds for education costs without
having to pay tax on the interest;
•
Receive tax-free education benefits from your em-
ployer; and
•
Claim a business deduction for work-related educa-
tion.
Note. You generally can't claim more than one of the
benefits described in the list above for the same qualifying
education expense.
Comparison table. Some of the features of these
benefits are highlighted in the Appendix, later in this publi-
cation. This general comparison table may guide you in
determining which benefits you may be eligible for and
which chapters you may want to read.
When you figure your taxes, you may want to
compare these tax benefits so you can choose
the method(s) that gives you the lowest tax liabil-
ity. If you qualify, you may find that a combination of
credit(s) and deduction(s) gives you the lowest tax.
Analyzing your tax withholding. After you estimate
your education tax benefits for the year, you may be able
to reduce the amount of your federal income tax withhold-
ing. Also, you may want to recheck your withholding dur-
ing the year if your personal or financial situation changes.
For more information, see Pub. 505.
Glossary. In this publication, wherever appropriate, we
have tried to use the same or similar terminology when re-
ferring to the basic components of each education benefit.
Some of the terms used are:
•
Qualified education expenses,
•
Eligible educational institution, and
•
Modified adjusted gross income (MAGI).
Even though the same term, such as qualified educa-
tion expenses, is used to label a basic component of many
of the education benefits, the same expenses aren't nec-
essarily allowed for each benefit. For example, the cost of
room and board is a qualified education expense for the
QTP, but not for the education savings bond program.
Many of the terms used in the publication are defined in
the glossary near the end of the publication. The glossary
isn't intended to be a substitute for reading the chapter on
a particular education benefit, but it will give you an over-
view of how certain terms are used in discussing the dif-
ferent benefits.
Comments and suggestions. We welcome your com-
ments about this publication and your suggestions for fu-
ture editions.
You can send us comments through IRS.gov/
FormComments. Or, you can write to the Internal Revenue
Service, Tax Forms and Publications, 1111 Constitution
Ave. NW, IR-6526, Washington, DC 20224.
Although we can’t respond individually to each com-
ment received, we do appreciate your feedback and will
consider your comments and suggestions as we revise
TIP
our tax forms, instructions, and publications. Don’t send
tax questions, tax returns, or payments to the above ad-
dress.
Getting answers to your tax questions. If you have
a tax question not answered by this publication or the How
To Get Tax Help section at the end of this publication, go
to the IRS Interactive Tax Assistant page at IRS.gov/
Help/ITA where you can find topics by using the search
feature or viewing the categories listed.
Getting tax forms, instructions, and publications.
Go to IRS.gov/Forms to download current and prior-year
forms, instructions, and publications.
Ordering tax forms, instructions, and publications.
Go to IRS.gov/OrderForms to order current forms, instruc-
tions, and publications; call 800-829-3676 to order
prior-year forms and instructions. The IRS will process
your order for forms and publications as soon as possible.
Don’t resubmit requests you’ve already sent us. You can
get forms and publications faster online.
Useful Items
You may want to see:
Publication
463 Travel, Gift, and Car Expenses
525 Taxable and Nontaxable Income
550 Investment Income and Expenses
590-A Contributions to Individual Retirement
Arrangements (IRAs)
590-B Distributions from Individual Retirement
Arrangements (IRAs)
Form (and Instructions)
1040 U.S. Individual Income Tax Return
1040-NR U.S. Nonresident Alien Income Tax Return
1040-SR U.S. Tax Return for Seniors
2106 Employee Business Expenses
5329 Additional Taxes on Qualified Plans (Including
IRAs) and Other Tax-Favored Accounts
8815 Exclusion of Interest From Series EE and I U.S.
Savings Bonds Issued After 1989
8863 Education Credits
See chapter 12 for information about getting these publi-
cations and forms.
463
525
550
590-A
590-B
1040
1040-NR
1040-SR
2106
5329
8815
8863
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1.
Scholarships, Fellowship
Grants, Grants, and
Tuition Reductions
Reminders
Individual retirement arrangements (IRAs). You can
set up and make contributions to an IRA if you receive tax-
able compensation. A scholarship or fellowship grant is
generally taxable compensation only if it is shown in box 1
of your Form W-2, Wage and Tax Statement. However, for
tax years beginning after 2019, certain non-tuition fellow-
ship and stipend payments not reported to you on Form
W-2 are treated as taxable compensation for IRA purpo-
ses. These include amounts paid to you to aid you in the
pursuit of graduate or postdoctoral study and included in
your gross income under the rules discussed in this chap-
ter. Taxable amounts not reported to you on Form W-2 are
generally included in gross income as discussed later un-
der Reporting Scholarships and Fellowship Grants. For
more information about IRAs, see Pub. 590-A and Pub.
590-B.
Higher education emergency grants. Emergency fi-
nancial aid grants under the following are not included in
your gross income.
•
The CARES Act.
•
The Coronavirus Response and Relief Supplemental
Appropriations Act, 2021.
•
The American Rescue Plan Act of 2021.
Also, for purposes of the American opportunity credit
(see chapter 2) and lifetime learning credit (see chap-
ter 3), a student does not reduce an amount of qualified
tuition and related expenses by the amount of an emer-
gency financial aid grant. For more information, see
Higher Education Emergency Grants Frequently Asked
Questions on IRS.gov.
Introduction
This chapter discusses the income tax treatment of vari-
ous types of educational assistance you may receive if
you are studying, teaching, or researching in the United
States. The educational assistance can be for a primary or
secondary school, a college or university, or a vocational
school. Included are discussions of:
•
Scholarships;
•
Fellowship grants;
•
Need-based education grants, such as a Pell grant;
and
•
Qualified tuition reductions.
Many types of educational assistance are tax free if they
meet the requirements discussed here.
Special rules apply to U.S. citizens and resident aliens
who have received scholarships or fellowship grants for
studying, teaching, or researching abroad. For information
about these rules, see Pub. 54, Tax Guide for U.S. Citi-
zens and Resident Aliens Abroad.
Scholarships and Fellowship
Grants
A scholarship is generally an amount paid or allowed to, or
for the benefit of, a student (whether an undergraduate or
a graduate) at an educational institution to aid in the pur-
suit of their studies.
A fellowship grant is generally an amount paid for the
benefit of an individual to aid in the pursuit of study or re-
search.
Amount of scholarship or fellowship grant. The
amount of a scholarship or fellowship grant includes the
following.
•
The value of contributed services and accommoda-
tions. This includes such services and accommoda-
tions as room (lodging), board (meals), laundry serv-
ice, and similar services or accommodations that are
received by an individual as a part of a scholarship or
fellowship grant.
•
The amount of tuition, matriculation, and other fees
that are paid for or remitted to the student to aid the
student in pursuing study or research.
•
Any amount received in the nature of a family allow-
ance as a part of a scholarship or fellowship grant.
Tax-Free Scholarships and Fellowship
Grants
A scholarship or fellowship grant is tax free (excludable
from gross income) only if you are a candidate for a de-
gree at an eligible educational institution.
You may be able to increase the combined value
of an education credit and certain educational as-
sistance if the student includes some or all of the
educational assistance in income in the year it is received.
See the examples under Coordination with Pell grants and
other scholarships in chapter 2 and chapter 3.
A scholarship or fellowship grant is tax free only to the
extent:
•
It doesn't exceed your qualified education expenses;
•
It isn't designated or earmarked for other purposes
(such as room and board), and doesn't require (by its
terms) that it can't be used for qualified education ex-
penses; and
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Tuition Reductions
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•
It doesn't represent payment for teaching, research, or
other services required as a condition for receiving the
scholarship. For exceptions, see Payment for services,
later.
Use Worksheet 1-1 to figure the amount of a scholar-
ship or fellowship grant you can exclude from gross in-
come.
Candidate for a degree. You are a candidate for a de-
gree if you:
1. Attend a primary or secondary school or are pursuing
a degree at a college or university; or
2. Attend an educational institution that:
a. Provides a program that is acceptable for full
credit toward a bachelor's or higher degree, or of-
fers a program of training to prepare students for
gainful employment in a recognized occupation;
and
b. Is authorized under federal or state law to provide
such a program and is accredited by a nationally
recognized accreditation agency.
Eligible educational institution. An eligible educational
institution is one whose primary function is the presenta-
tion of formal instruction and that normally maintains a
regular faculty and curriculum and normally has a regu-
larly enrolled body of students in attendance at the place
where it regularly carries on its educational activities.
Qualified education expenses. For purposes of tax-free
scholarships and fellowship grants, these are expenses
for:
•
Tuition and fees required to enroll at or attend an eligi-
ble educational institution; and
•
Course-related expenses, such as fees, books, sup-
plies, and equipment that are required for the courses
at the eligible educational institution. These items
must be required of all students in your course of in-
struction.
Expenses that don't qualify. Qualified education ex-
penses don't include the cost of:
•
Room and board,
•
Travel,
•
Research,
•
Clerical help, or
•
Equipment and other expenses that aren't required for
enrollment in or attendance at an eligible educational
institution.
Payment for services. Generally, you can't exclude from
your gross income the part of any scholarship or fellow-
ship grant that represents payment for teaching, research,
or other services required as a condition for receiving the
scholarship. This applies even if all candidates for a de-
gree must perform the services to receive the degree.
However, see Exceptions next.
Exceptions. You don't have to treat as payment for
services the part of any scholarship or fellowship grant
that represents payment for teaching, research, or other
services if you receive the amount under:
•
The National Health Service Corps Scholarship Pro-
gram,
•
The Armed Forces Health Professions Scholarship
and Financial Assistance Program, or
•
A comprehensive student work-learning-service pro-
gram (as defined in section 448(e) of the Higher Edu-
cation Act of 1965) operated by a work college (as de-
fined in that section).
Example 1. You received a scholarship of $2,500. The
scholarship wasn't received under any of the exceptions
mentioned above. As a condition for receiving the scholar-
ship, you must serve as a part-time teaching assistant. Of
the $2,500 scholarship, $1,000 represents payment for
teaching. The provider of your scholarship gives you a
Form W-2 showing $1,000 as income. Your qualified edu-
cation expenses were at least $1,500. Assuming that all
other conditions are met, the most you can exclude from
your gross income is $1,500. The $1,000 you received for
teaching must be included in your gross income.
Example 2. You are a candidate for a degree at a
medical school. You receive a scholarship (not under any
of the exceptions mentioned above) for your medical edu-
cation and training. The terms of your scholarship require
you to perform future services. A substantial penalty ap-
plies if you don't comply. The entire amount of your grant
is taxable as payment for services in the year it is re-
ceived.
Athletic Scholarships
An athletic scholarship is tax free only if and to the extent
it meets the requirements discussed earlier.
Worksheet 1-1. You can use Worksheet 1-1 to figure the
tax-free and taxable parts of your athletic scholarship.
Taxable Scholarships and Fellowship
Grants
If and to the extent your scholarship or fellowship grant
doesn't meet the requirements described earlier, it is taxa-
ble and must be included in gross income. You can use
Worksheet 1-1 to figure the tax-free and taxable parts of
your scholarship or fellowship grant.
Reporting Scholarships and
Fellowship Grants
Whether you must report your scholarship or fellowship
grant depends on whether you must file a return and
whether any part of your scholarship or fellowship grant is
taxable.
6 Chapter 1 Scholarships, Fellowship Grants, Grants, and
Tuition Reductions
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If your only income is a completely tax-free scholarship
or fellowship grant, you don't have to file a tax return and
no reporting is necessary. If all or part of your scholarship
or fellowship grant is taxable and you are required to file a
tax return, report the taxable amount as explained below.
You must report the taxable amount whether or not you re-
ceived a Form W-2. If you receive an incorrect Form W-2,
ask the payer for a corrected one.
For information on whether you must file a return, see
Pub. 501, Dependents, Standard Deduction, and Filing In-
formation, or your income tax form instructions.
How To Report
How you report any taxable scholarship or fellowship grant
income depends on which return you file.
Form 1040 or 1040-SR. If you file Form 1040 or
1040-SR, include any taxable amount reported to you in
box 1 of Form W-2 in the total on line 1a. Include any taxa-
ble amount not reported to you in box 1 of Form W-2 on
Schedule 1 (Form 1040), line 8r.
Form 1040-NR. If you file Form 1040-NR, report any tax-
able amount on Schedule 1 (Form 1040), line 8r. Gener-
ally, you must report the amount reported to you in box 2
of Form(s) 1042-S, Foreign Person's U.S. Source Income
Subject to Withholding. For more information, see the In-
structions for Form 1040-NR.
Other Types of
Educational Assistance
The following discussions deal with other common types
of educational assistance.
Fulbright Grants
A Fulbright grant is generally treated as a scholarship or
fellowship grant in figuring how much of the grant is tax
free.
Pell Grants and Other Title IV
Need-Based Education Grants
These need-based grants are treated as scholarships for
purposes of determining their tax treatment. They are tax
free to the extent used for qualified education expenses
during the period for which a grant is awarded.
Payment to Service Academy Cadets
An appointment to a U.S. military academy isn't a scholar-
ship or fellowship grant. Payment you receive as a cadet
or midshipman at an armed services academy is pay for
personal services and will be reported to you in box 1 of
Form W-2. Include this pay in your income in the year you
receive it.
Taxable Scholarship and
Fellowship Grant Income
Worksheet 1-1.
Keep for Your Records
1. Enter the total amount of any scholarship or fellowship grant for 2023. See Amount of
scholarship or fellowship grant, earlier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.
•
If you are a degree candidate at an eligible educational institution, go to line 2.
•
If you aren't a degree candidate at an eligible educational institution, stop here. The
entire amount is taxable. For information on how to report this amount on your tax return,
see Reporting Scholarships and Fellowship Grants, earlier.
2. Enter the amount from line 1 that was for teaching, research, or any other services required
as a condition for receiving the scholarship. Don't include amounts received for these items
under the National Health Service Corps Scholarship Program, the Armed Forces Health
Professions Scholarship and Financial Assistance Program, or a comprehensive student
work-learning-service program (as defined in section 448(e) of the Higher Education Act of
1965) operated by a work college (as defined in that section) .......................... 2.
3. Subtract line 2 from line 1 .......................................................
3.
4. Enter the amount from line 3 that your scholarship or fellowship grant required you to use for
other than qualified education expenses ........................................... 4.
5. Subtract line 4 from line 3 .......................................................
5.
6. Enter the amount of your qualified education expenses ...............................
6.
7. Enter the smaller of line 5 or line 6. This amount is the most you can exclude from your gross
income (the tax-free part of the scholarship or fellowship grant) ........................ 7.
8. Subtract line 7 from line 5 .......................................................
8.
9. Taxable part. Add lines 2, 4, and 8. See Reporting Scholarships and Fellowship Grants,
earlier, for information on how to report this amount on your tax return ................... 9.
Publication 970 (2023) Chapter 1 Scholarships, Fellowship Grants, Grants, and
Tuition Reductions
7
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Veterans' Benefits
Payments you receive for education, training, or subsis-
tence under any law administered by the Department of
Veterans Affairs (VA) are tax free. Don't include these pay-
ments as income on your federal tax return.
If you qualify for one or more of the education tax bene-
fits discussed in chapters 2 through 11, you may have to
reduce the amount of education expenses qualifying for a
specific tax benefit by part or all of your VA payments. This
applies only to the part of your VA payments that is re-
quired to be used for education expenses.
You may want to visit the Veterans Administration web-
site at www.va.gov/education for specific information
about the various VA benefits for education.
Example. You have returned to college and are receiv-
ing two education benefits under the latest GI Bill: (1) a
$1,534 monthly basic housing allowance (BHA) that is di-
rectly deposited to your checking account, and (2) $3,840
paid directly to your college for tuition. Neither of these
benefits is taxable and you don't report them on your tax
return. You also want to claim an American opportunity
credit on your return. Your total tuition charges are $5,000.
To figure the amount of credit, you must first subtract the
$3,840 from your qualified education expenses because
this payment under the GI Bill was required to be used for
education expenses. You don't subtract any amount of
the BHA because it was paid to you and its use wasn't re-
stricted.
Qualified Tuition Reduction
If you are allowed to study tuition free or for a reduced rate
of tuition, you may not have to pay tax on this benefit. This
is called a tuition reduction. You don't have to include a
qualified tuition reduction in your income.
A tuition reduction is qualified only if you receive it from,
and use it at, an eligible educational institution. You don't
have to use the tuition reduction at the eligible educational
institution from which you received it. In other words, if you
work for an eligible educational institution and the institu-
tion arranges for you to take courses at another eligible
educational institution without paying any tuition, you may
not have to include the value of the free courses in your in-
come.
The rules for determining if a tuition reduction is quali-
fied, and therefore tax free, are different if the education
provided is below the graduate level or is graduate educa-
tion.
You must include in your income any tuition reduction
you receive that is payment for your services.
Eligible educational institution. An eligible educational
institution is one that maintains a regular faculty and cur-
riculum and normally has a regularly enrolled body of stu-
dents in attendance at the place where it regularly carries
on its educational activities.
Officers, owners, and highly compensated employ-
ees. Qualified tuition reductions apply to officers, owners,
or highly compensated employees only if benefits are
available to employees on a nondiscriminatory basis. This
means that the tuition reduction benefits must be available
on substantially the same basis to each member of a
group of employees. The group must be defined under a
reasonable classification set up by the employer. The
classification must not discriminate in favor of owners, offi-
cers, or highly compensated employees.
Payment for services. Generally, you must include in in-
come the part of any qualified tuition reduction that repre-
sents payment for teaching, research, or other services by
the student required as a condition of receiving the quali-
fied tuition reduction. This applies even if all candidates
for a degree must perform the services to receive the de-
gree. However, see Exceptions next.
Exceptions. You don't have to include in income the
part of any scholarship or fellowship grant that represents
payment for teaching, research, or other services if you re-
ceive the amount under:
•
The National Health Service Corps Scholarship Pro-
gram,
•
The Armed Forces Health Professions Scholarship
and Financial Assistance Program, or
•
A comprehensive student work-learning-service pro-
gram (as defined in section 448(e) of the Higher Edu-
cation Act of 1965) operated by a work college (as de-
fined in that section).
Education Below the Graduate Level
If you receive a tuition reduction for education below the
graduate level (including primary and secondary school),
it is a qualified tuition reduction, and therefore tax free,
only if your relationship to the educational institution pro-
viding the benefit is described below.
1. You are an employee of the eligible educational insti-
tution.
2. You were an employee of the eligible educational in-
stitution, but you retired or left on disability.
3. You are the surviving spouse of an individual who died
while an employee of the eligible educational institu-
tion or who retired or left on disability.
4. You are the dependent child or spouse of an individ-
ual described in (1) through (3) above.
Child of deceased parents. For purposes of the quali-
fied tuition reduction, a child is a dependent child if the
child is under age 25 and both parents have died.
Child of divorced parents. For purposes of the quali-
fied tuition reduction, a dependent child of divorced pa-
rents is treated as the dependent of both parents.
8 Chapter 1 Scholarships, Fellowship Grants, Grants, and
Tuition Reductions
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Graduate Education
A tuition reduction you receive for graduate education is
qualified, and therefore tax free, if both of the following re-
quirements are met.
•
It is provided by an eligible educational institution.
•
You are a graduate student who performs teaching or
research activities for the educational institution.
You must include in income any other tuition reductions for
graduate education that you receive.
How To Report
Any tuition reduction that is taxable should be included as
wages in box 1 of your Form W-2. Report the amount from
box 1 of Form W-2 on Form 1040 or 1040-SR, line 1a.
2.
American Opportunity
Credit
Reminders
Educational institution's EIN required. To claim the
American opportunity credit, you must provide the educa-
tional institution's employer identification number (EIN) on
your Form 8863. You should be able to obtain this informa-
tion from Form 1098-T or the educational institution.
Form 8862 may be required. If your American opportu-
nity credit was denied or reduced for any reason other
than a math or clerical error for any tax year beginning af-
ter 2015, you must attach a completed Form 8862, Infor-
mation To Claim Certain Credits After Disallowance, to
your tax return for the next year for which you claim the
credit. See Form 8862 and its instructions for details.
Form 1098-T requirement. To be eligible to claim the
American opportunity credit, the law requires a taxpayer
(or a dependent) to have received Form 1098-T, Tuition
Statement, from an eligible educational institution,
whether domestic or foreign.
However, you may claim the credit if the student doesn't
receive a Form 1098-T because the student's educational
institution isn't required to furnish a Form 1098-T to the
student under existing rules (for example, if the student is
a qualified nonresident alien, has qualified education ex-
penses paid entirely with scholarships, has qualified edu-
cation expenses paid under a formal billing arrangement,
or is enrolled in courses for which no academic credit is
awarded). If a student's educational institution isn't re-
quired to provide a Form 1098-T to the student, you may
claim the credit without a Form 1098-T if you otherwise
qualify, can demonstrate that you (or a dependent) were
enrolled at an eligible educational institution, and can sub-
stantiate the payment of qualified tuition and related ex-
penses.
You may also claim a credit if the student attended an
eligible educational institution required to furnish Form
1098-T but the student doesn't receive Form 1098-T be-
fore you file your tax return (for example, if the institution is
otherwise required to furnish the Form 1098-T and doesn't
furnish it or refuses to do so) and you take the following re-
quired steps: After January 31, 2024, but before you file
your 2023 tax return, you or the student must request that
the educational institution furnish a Form 1098-T. You
must fully cooperate with the educational institution's ef-
forts to gather the information needed to furnish the Form
1098-T. You must also otherwise qualify for the benefit, be
able to demonstrate that you (or a dependent) were enrol-
led at an eligible educational institution, and substantiate
the payment of qualified tuition and related expenses.
Ban on claiming the American opportunity credit. If
you claim the American opportunity credit even though
you're not eligible, you may be banned from claiming the
credit for 2 or 10 years depending on your conduct. See
Caution under Introduction below.
Taxpayer identification number (TIN) needed by due
date of return. If you haven't been issued a TIN by the
due date of your 2023 return (including extensions), you
can't claim the American opportunity credit on either your
original or an amended 2023 return. Also, the American
opportunity credit isn't allowed on either your original or an
amended 2023 return for a student who hasn't been is-
sued a TIN by the due date of your return (including exten-
sions).
Introduction
For 2023, there are two tax credits available to help you
offset the costs of higher education by reducing the
amount of your income tax. They are the American oppor-
tunity credit (this chapter) and the lifetime learning credit
(chapter 3).
This chapter explains:
•
Who can claim the American opportunity credit,
•
What expenses qualify for the credit,
•
Who is an eligible student,
•
Who can claim a dependent's expenses,
•
How to figure the credit,
•
How to claim the credit, and
•
When the credit must be repaid.
What is the tax benefit of the American opportunity
credit? For 2023, you may be able to claim a credit of up
to $2,500 for adjusted qualified education expenses paid
for each student who qualifies for the American opportu-
nity credit.
A tax credit reduces the amount of income tax you may
have to pay. Unlike a deduction, which reduces the
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amount of income subject to tax, a credit directly reduces
the tax itself. Forty percent of the American opportunity
credit may be refundable. This means that if the refunda-
ble portion of your credit is more than your tax, the excess
will be refunded to you.
Your allowable American opportunity credit may be limi-
ted by the amount of your income. Also, the nonrefundable
part of the credit may be limited by the amount of your tax.
Overview of the American opportunity credit for
2023. See Table 2-1 for the basics of this credit. The de-
tails are discussed in this chapter.
Can you claim more than one education credit this
year? For each student, you can elect for any year only
one of the credits. For example, if you elect to claim the
American opportunity credit for a dependent on your 2023
tax return, you can't use that same dependent's qualified
education expenses to figure the lifetime learning credit for
2023.
If you pay qualified education expenses for more than
one student in the same year, you can choose to claim the
American opportunity credit on a per-student, per-year ba-
sis. If you pay qualified education expenses for a student
(or students) for whom you don't claim the American op-
portunity credit, you can use the adjusted qualified educa-
tion expenses of that student (or those students) in figur-
ing your lifetime learning credit. This means that, for
example, you can claim the American opportunity credit
for one student and the lifetime learning credit for another
student in the same year.
Differences between the American opportunity and
lifetime learning credits. There are several differences
between these two credits. For example, you can claim
the American opportunity credit based on the same stu-
dent's expenses for no more than 4 tax years. However,
there is no limit on the number of years for which you can
claim a lifetime learning credit based on the same stu-
dent's expenses. The differences between these credits
are shown in the Appendix near the end of this publica-
tion.
If you claim the American opportunity credit for
any student, you can choose between using that
student's adjusted qualified education expenses
for the American opportunity credit or the lifetime learning
credit. If you have the choice, the American opportunity
credit will always be greater than the lifetime learning
credit.
Form 8862 may be required. If your American opportu-
nity credit was denied or reduced for any reason other
than a math or clerical error for any tax year beginning af-
ter 2015, you must attach a completed Form 8862 to your
tax return for the next tax year for which you claim the
credit. See Form 8862 and its instructions for details.
Don't claim the American opportunity credit for 2
years after there was a final determination that
your claim was due to reckless or intentional dis-
regard of the rules, or 10 years after there was a final de-
termination that your claim was due to fraud.
TIP
CAUTION
!
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Overview of the American Opportunity Credit for 2023Table 2-1.
Maximum credit Up to $2,500 credit per eligible student
Limit on modified adjusted gross income
(MAGI)
$180,000 if married filing jointly; $90,000 if single, head of household, or qualifying
surviving spouse
Refundable or nonrefundable 40% of credit may be refundable; the rest is nonrefundable
Number of years of postsecondary education Available ONLY if the student had not completed the first 4 years of postsecondary
education before 2023 (generally, the freshman through senior years, determined by
the eligible educational institution, not including academic credit awarded solely
because of the student's performance on proficiency examinations)
Number of tax years credit available Available ONLY for 4 tax years per eligible student
Type of program required Student must be pursuing a program leading to a degree or other recognized
education credential
Number of courses Student must be enrolled at least half-time for at least one academic period that
begins during 2023 (or the first 3 months of 2024 if the qualified expenses were paid
in 2023)
Felony drug conviction As of the end of 2023, the student had not been convicted of a felony for possessing
or distributing a controlled substance
Qualified expenses Tuition, required enrollment fees, and course materials that the student needs for a
course of study whether or not the materials are bought at the educational institution
as a condition of enrollment or attendance
Payments for academic periods Payments made in 2023 for academic periods beginning in 2023 or beginning in the
first 3 months of 2024
TIN needed by filing due date Filers and students must have been issued a TIN by the due date of their 2023 return
(including extensions)
Educational institution’s EIN You must provide the educational institution's employer identification number (EIN) on
your Form 8863
Can You Claim the Credit?
The following rules will help you determine if you are eligi-
ble to claim the American opportunity credit on your tax re-
turn.
Who Can Claim the Credit?
Generally, you can claim the American opportunity credit if
all three of the following requirements are met.
•
You pay qualified education expenses of higher edu-
cation.
•
You pay the education expenses for an eligible stu-
dent.
•
The eligible student is either yourself, your spouse, or
a dependent you claim on your tax return.
Note. Qualified education expenses paid by a depend-
ent you claim on your tax return, or by a third party for that
dependent, are considered paid by you.
Student qualifications. Generally, you can claim the
American opportunity credit for a student only if all of the
following four requirements are met.
1. As of the beginning of 2023, the student had not com-
pleted the first 4 years of postsecondary education
(generally, the freshman through senior years of col-
lege), as determined by the eligible educational insti-
tution. For this purpose, don't include academic credit
awarded solely because of the student's performance
on proficiency examinations.
2. The American opportunity credit has not been
claimed by you or anyone else (see below) for this
student for any 4 tax years before 2023. If the Ameri-
can opportunity credit has been claimed for this stu-
dent for any 3 or fewer tax years before 2023, this re-
quirement is met.
3. For at least one academic period beginning (or trea-
ted as beginning) in 2023, the student both:
a. Was enrolled in a program that leads to a degree,
certificate, or other recognized educational cre-
dential; and
b. Carried at least one-half the normal full-time work-
load for their course of study.
The standard for what is half of the normal
full-time workload is determined by each eligible
educational institution. However, the standard may
not be lower than any of those established by the
U.S. Department of Education under the Higher
Education Act of 1965.
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For 2023, treat an academic period beginning
in the first 3 months of 2024 as if it began in 2023
if qualified education expenses for the student
were paid in 2023 for that academic period. See
Prepaid expenses, later.
4. As of the end of 2023, the student had not been con-
victed of a federal or state felony for possessing or
distributing a controlled substance.
Example 1. Sharon was eligible for the American op-
portunity credit for 2017, 2018, 2020, and 2022. Sharon’s
parents claimed the American opportunity credit for
Sharon on their 2017, 2018, and 2020 tax returns. Sharon
claimed the American opportunity credit on her 2022 tax
return. The American opportunity credit has been claimed
for Sharon for 4 tax years before 2023. Therefore, the
American opportunity credit can't be claimed for Sharon
for 2023. If Sharon were to file Form 8863 for 2023, the
box on Part III, line 23, should be checked “Yes” and only
the lifetime learning credit would be able to be claimed.
Example 2. Wilbert was eligible for the American op-
portunity credit for 2019, 2020, 2021, and 2023. Wilbert’s
parents claimed the American opportunity credit for Wil-
bert on their tax returns for 2019, 2020, and 2021. No one
claimed an American opportunity credit for Wilbert for any
other tax year. The American opportunity credit has been
claimed for Wilbert for only 3 tax years before 2023.
Therefore, Wilbert meets the second requirement to be el-
igible for the American opportunity credit. If Wilbert were
to file Form 8863 for 2023, the box on Part III, line 23,
should be checked “No.” If Wilbert meets all of the other
requirements, he is eligible for the American opportunity
credit.
Example 3. Glenda enrolls on a full-time basis in a de-
gree program for the 2024 spring semester, which begins
in January 2024. Glenda pays the tuition for the 2024
spring semester in December 2023. Because the tuition
Glenda paid in 2023 relates to an academic period that
begins in the first 3 months of 2024, the eligibility to claim
an American opportunity credit in 2023 is determined as if
the 2024 spring semester began in 2023. Therefore,
Glenda satisfies this third requirement.
If the requirements above aren't met for any stu-
dent, you can't claim the American opportunity
credit for that student. You may be able to claim
the lifetime learning credit for part or all of that student's
qualified education expenses instead.
“Qualified education expenses” are defined later under
Qualified Education Expenses. “Eligible students” are de-
fined later under Who Is an Eligible Student. A dependent
you claim on your tax return is defined later under Who
Can Claim a Dependent's Expenses.
You may find Figure 2-1 helpful in determining if you
can claim an American opportunity credit on your tax re-
turn.
TIP
Who Can't Claim the Credit?
You can't claim the American opportunity credit for 2023 if
any of the following apply.
•
Your filing status is married filing separately.
•
You are claimed as a dependent on another person's
tax return, such as your parent's return. See Who Can
Claim a Dependent's Expenses, later.
•
Your modified adjusted gross income (MAGI) is
$90,000 or more ($180,000 or more if married filing
jointly). MAGI is explained later under Effect of the
Amount of Your Income on the Amount of Your Credit.
•
You (or your spouse) were a nonresident alien for any
part of 2023 and the nonresident alien didn't elect to
be treated as a resident alien for tax purposes. More
information on nonresident aliens can be found in Pub.
519, U.S. Tax Guide for Aliens.
•
You weren’t issued an SSN (or ITIN) by the due date
of your 2023 return (including extensions). You can't
claim the American opportunity credit on either your
original or an amended 2023 return. Also, you can't
claim this credit on your original or an amended 2023
return for a student who wasn’t issued an SSN, ATIN,
or ITIN by the due date of your return (including exten-
sions). If an ATIN or ITIN is applied for on or before the
due date of a 2023 return (including extensions) and
the IRS issues an ATIN or ITIN as a result of the appli-
cation, the IRS will consider the ATIN or ITIN as is-
sued on or before the due date of the return.
What Expenses Qualify?
The American opportunity credit is based on adjusted
qualified education expenses you pay for yourself, your
spouse, or a dependent you claim on your tax return. Gen-
erally, the credit is allowed for adjusted qualified education
expenses paid in 2023 for an academic period beginning
in 2023 or beginning in the first 3 months of 2024.
For example, if you paid $1,500 in December 2023 for
qualified tuition for the spring 2024 semester beginning
January 2024, you can use that $1,500 in figuring your
2023 credit.
Academic period. An academic period includes a se-
mester, trimester, quarter, or other period of study (such
as a summer school session) as reasonably determined
by an educational institution. If an educational institution
uses credit hours or clock hours and doesn't have aca-
demic terms, each payment period can be treated as an
academic period.
Paid with borrowed funds. You can claim an American
opportunity credit for qualified education expenses paid
with the proceeds of a loan. Use the expenses to figure
the American opportunity credit for the year in which the
expenses are paid, not the year in which the loan is re-
paid. Treat loan payments sent directly to the educational
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institution as paid on the date the institution credits the
student's account.
Student withdraws from class(es). You can claim an
American opportunity credit for qualified education expen-
ses not refunded when a student withdraws.
Qualified Education Expenses
For purposes of the American opportunity credit, qualified
education expenses are tuition and certain related
expenses required for enrollment or attendance at an eligi-
ble educational institution.
Eligible educational institution. An eligible educational
institution is any college, university, vocational school, or
other postsecondary educational institution eligible to par-
ticipate in a student aid program administered by the U.S.
Department of Education. Virtually all accredited public,
nonprofit, and proprietary (privately owned profit-making)
postsecondary institutions meet this definition.
An eligible educational institution also includes certain
educational institutions located outside the United States
Figure 2-1. Can You Claim the American Opportunity Credit for 2023?
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that are eligible to participate in a student aid program ad-
ministered by the U.S. Department of Education.
The educational institution should be able to tell
you if it is an eligible educational institution.
Related expenses. Student activity fees are included in
qualified education expenses only if the fees must be paid
to the institution as a condition of enrollment or attend-
ance.
However, expenses for books, supplies, and equipment
needed for a course of study are included in qualified edu-
cation expenses whether or not the materials are pur-
chased from the educational institution.
Prepaid expenses. Qualified education expenses paid
in 2023 for an academic period that begins in the first 3
months of 2024 can be used in figuring an education
credit for 2023 only. See Academic period, earlier. For ex-
ample, if you pay $2,000 in December 2023 for qualified
tuition for the 2024 winter quarter that begins in January
2024, you can use that $2,000 in figuring an education
credit for 2023 only (if you meet all the other require-
ments).
You can't use any amount you paid in 2022 or
2024 to figure the qualified education expenses
you use to figure your 2023 education credit(s).
In the following examples, assume that each student is
an eligible student at an eligible educational institution.
Example 1. Jefferson is a sophomore in University V's
degree program in dentistry. This year, in addition to tui-
tion, there is a requirement to pay a fee to the university for
the rental of the dental equipment used in this program.
Because the equipment rental is needed for this course of
study, Jefferson's equipment rental fee is a qualified ex-
pense.
Example 2. Grace and William, both first-year stu-
dents at College W, are required to have certain books
and other reading materials to use in their mandatory
first-year classes. The college has no policy about how
students should obtain these materials, but any student
who purchases them from College W's bookstore will re-
ceive a bill directly from the college. William bought the
books from a friend; Grace bought the books at College
W's bookstore. Both are qualified education expenses for
the American opportunity credit.
Example 3. When Kelly enrolled at College X for the
freshman year, the school required payment of a separate
student activity fee in addition to the tuition. This activity
fee is required of all students, and is used solely to fund
on-campus organizations and activities run by students,
such as the student newspaper and the student govern-
ment. No portion of the fee covers personal expenses. Al-
though labeled as a student activity fee, the fee is required
for Kelly's enrollment and attendance at College X and is a
qualified expense.
TIP
CAUTION
!
No Double Benefit Allowed
You can't do any of the following.
•
Deduct higher education expenses on your income
tax return (as, for example, a business expense) and
also claim an American opportunity credit based on
those same expenses.
•
Claim an American opportunity credit for any student
and use any of that student's expenses in figuring your
lifetime learning credit.
•
Figure the tax-free portion of a distribution from a Cov-
erdell education savings account (ESA) or qualified
tuition program (QTP) using the same expenses you
used to figure the American opportunity credit. See
Coordination With American Opportunity and Lifetime
Learning Credits in chapter 6 and Coordination With
American Opportunity and Lifetime Learning Credits in
chapter 7.
•
Claim a credit based on qualified education expenses
paid with tax-free educational assistance, such as a
scholarship, grant, or assistance provided by an em-
ployer. See Adjustments to Qualified Education Ex-
penses next.
Adjustments to Qualified Education
Expenses
For each student, reduce the qualified education expen-
ses paid by or on behalf of that student under the following
rules. The result is the amount of adjusted qualified edu-
cation expenses for each student.
Tax-free educational assistance. For tax-free educa-
tional assistance received in 2023, reduce the qualified
educational expenses for each academic period by the
amount of tax-free educational assistance allocable to that
academic period. See Academic period, earlier.
Some tax-free educational assistance received after
2023 may be treated as a refund of qualified education ex-
penses paid in 2023. This tax-free educational assistance
is any tax-free educational assistance received by you or
anyone else after 2023 for qualified education expenses
paid on behalf of a student in 2023 (or attributable to en-
rollment at an eligible educational institution during 2023).
If this tax-free educational assistance is received after
2023 but before you file your 2023 income tax return, see
Refunds received after 2023 but before your income tax
return is filed, later. If this tax-free educational assistance
is received after 2023 and after you file your 2023 income
tax return, see Refunds received after 2023 and after your
income tax return is filed, later.
Tax-free educational assistance includes:
•
The tax-free parts of scholarships and fellowship
grants (see Tax-Free Scholarships and Fellowship
Grants in chapter 1);
•
The tax-free part of Pell grants (see Pell Grants and
Other Title IV Need-Based Education Grants in chap-
ter 1);
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•
Employer-provided educational assistance (see chap-
ter 10);
•
Veterans' educational assistance (see Veterans' Bene-
fits in chapter 1); and
•
Any other nontaxable (tax-free) payments (other than
gifts or inheritances) received as educational assis-
tance.
Generally, any scholarship or fellowship grant is treated
as tax free. However, a scholarship or fellowship grant isn't
treated as tax free to the extent the student includes it in
gross income (the student may or may not be required to
file a tax return for the year the scholarship or fellowship
grant is received) and either of the following is true.
•
The scholarship or fellowship grant (or any part of it)
must be applied (by its terms) to expenses (such as
room and board) other than qualified education ex-
penses as defined in Qualified education expenses in
chapter 1.
•
The scholarship or fellowship grant (or any part of it)
may be applied (by its terms) to expenses (such as
room and board) other than qualified education ex-
penses as defined in Qualified education expenses in
chapter 1.
A student can't choose to include in income a
scholarship or fellowship grant provided by an In-
dian tribal government that is excluded from in-
come under the Tribal General Welfare Exclusion Act of
2014 or benefits provided by an educational program de-
scribed in Revenue Procedure 2014-35, section 5.02(2)(b)
(ii), available at IRS.gov/irb/2014-26_IRB#RP-2014-35.
You may be able to increase the combined value
of an education credit if the student includes
some or all of a scholarship or fellowship grant in
income in the year it is received. For examples, see Coor-
dination with Pell grants and other scholarships, later.
Refunds. A refund of qualified education expenses may
reduce adjusted qualified education expenses for the tax
year or require repayment (recapture) of a credit claimed
in an earlier year. Some tax-free educational assistance
received after 2023 may be treated as a refund. See
Tax-free educational assistance, earlier.
Refunds received in 2023. For each student, figure
the adjusted qualified education expenses for 2023 by
adding all the qualified education expenses for 2023 and
subtracting any refunds of those expenses received from
the eligible educational institution during 2023.
Refunds received after 2023 but before your in-
come tax return is filed. If anyone receives a refund af-
ter 2023 of qualified education expenses paid on behalf of
a student in 2023 and the refund is paid before you file an
income tax return for 2023, the amount of qualified educa-
tion expenses for 2023 is reduced by the amount of the re-
fund.
Refunds received after 2023 and after your income
tax return is filed. If anyone receives a refund after 2023
CAUTION
!
TIP
of qualified education expenses paid on behalf of a stu-
dent in 2023 and the refund is paid after you file an in-
come tax return for 2023, you may need to repay some or
all of the credit. See Credit recapture next.
Credit recapture. If any tax-free educational assistance
for the qualified education expenses paid in 2023, or any
refund of your qualified education expenses paid in 2023,
is received after you file your 2023 income tax return, you
must recapture (repay) any excess credit. You do this by
refiguring the amount of your adjusted qualified education
expenses for 2023 by reducing the expenses by the
amount of the refund or tax-free educational assistance.
You then refigure your education credit(s) for 2023 and fig-
ure the amount by which your 2023 tax liability would have
increased if you claimed the refigured credit(s). Include
that amount as an additional tax for the year the refund or
tax-free assistance was received.
Example. You paid $7,000 tuition and fees in August
2023, and your child began college in September 2023.
You filed your 2023 tax return on February 17, 2024, and
claimed an American opportunity credit of $2,500. After
you filed your return, you received a refund of $4,000. You
must refigure your 2023 American opportunity credit using
$3,000 of qualified education expenses instead of $7,000.
The refigured credit is $2,250. The increase to your tax lia-
bility is $250. Include the difference of $250 as additional
tax on your 2024 tax return. See the instructions for your
2024 income tax return to determine where to include this
tax.
If you pay qualified education expenses in both
2023 and 2024 for an academic period that be-
gins in the first 3 months of 2024 and you receive
tax-free educational assistance, or a refund, as described
above, you may choose to reduce your qualified education
expenses for 2024 instead of reducing your expenses for
2023.
Amounts that don't reduce qualified education ex-
penses. Don't reduce qualified education expenses by
amounts paid with funds the student receives as:
•
Payment for services, such as wages;
•
A loan;
•
A gift;
•
An inheritance; or
•
A withdrawal from the student's personal savings.
Don't reduce the qualified education expenses by any
scholarship or fellowship grant reported as income on the
student's tax return in the following situations.
•
The use of the money is restricted, by the terms of the
scholarship or fellowship grant, to costs of attendance
(such as room and board) other than qualified educa-
tion expenses as defined in Qualified education ex-
penses in chapter 1.
•
The use of the money isn't restricted.
TIP
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Example 1. Joan paid $3,000 for tuition and $5,000 for
room and board at University X. The university did not re-
quire payment of any fees in addition to the tuition in order
to enroll in or attend classes. To help pay these costs,
Joan was awarded a $2,000 scholarship and a $4,000
student loan. The terms of the scholarship state that it can
be used to pay any of Joan's college expenses.
University X applies the $2,000 scholarship against
Joan's $8,000 total bill, and Joan pays the $6,000 balance
of the bill from University X with a combination of the stu-
dent loan and personal savings. Joan doesn't report any
portion of the scholarship as income on the tax return.
In figuring the amount of either education credit (Ameri-
can opportunity or lifetime learning), Joan must reduce the
qualified education expenses by the amount of the schol-
arship ($2,000) because the entire scholarship was exclu-
ded from the reported income on Joan’s tax return. The
student loan isn't tax-free educational assistance, so the
qualified expenses don't need to be reduced by any part
of the loan proceeds. Joan is treated as having paid
$1,000 in qualified education expenses ($3,000 tuition −
$2,000 scholarship).
Example 2. The facts are the same as in Example 1,
except that Joan reports the entire scholarship as income
on the tax return. Because Joan reported the entire
$2,000 scholarship as income, the qualified education ex-
penses don't need to be reduced. Joan is treated as hav-
ing paid $3,000 in qualified education expenses.
Coordination with Pell grants and other scholarships.
You may be able to increase your American opportunity
credit when the student (you, your spouse, or your de-
pendent) includes certain scholarships or fellowship
grants in the student's gross income. Your credit may in-
crease only if the amount of the student's qualified educa-
tion expenses minus the total amount of scholarships and
fellowship grants is less than $4,000. If this situation ap-
plies, consider including some or all of the scholarship or
fellowship grant in the student's income in order to treat
the included amount as paying nonqualified expenses in-
stead of qualified education expenses. Nonqualified ex-
penses are expenses such as room and board that aren't
qualified education expenses such as tuition and related
fees.
Scholarships and fellowship grants that the student in-
cludes in income don't reduce the student's qualified edu-
cation expenses available to figure your American oppor-
tunity credit. Thus, including enough scholarship or
fellowship grant in the student's income to report up to
$4,000 in qualified education expenses for your American
opportunity credit may increase the credit by enough to in-
crease your tax refund or reduce the amount of tax you
owe even considering any increased tax liability from the
additional income. However, the increase in tax liability as
well as the loss of other tax credits may be greater than
the additional American opportunity credit and may cause
your tax refund to decrease or the amount of tax you owe
to increase. Your specific circumstances will determine
what amount, if any, of scholarship or fellowship grant to
include in income to maximize your tax refund or minimize
the amount of tax you owe.
The scholarship or fellowship grant must be one that may
qualify as a tax-free scholarship under the rules discussed
in chapter 1. Also, the scholarship or fellowship grant must
be one that may (by its terms) be used for nonqualified ex-
penses. Finally, the amount of the scholarship or fellow-
ship grant that is applied to nonqualified expenses can't
exceed the amount of the student's actual nonqualified ex-
penses that are paid in the tax year. This amount may dif-
fer from the student's living expenses estimated by the
student's school in figuring the official cost of attendance
under student aid rules.
The fact that the educational institution applies the
scholarship or fellowship grant to qualified education ex-
penses, such as tuition and related fees, doesn't prevent
the student from choosing to apply certain scholarships or
fellowship grants to the student’s actual nonqualified ex-
penses. By making this choice (that is, by including the
part of the scholarship or fellowship grant applied to the
student’s nonqualified expenses in income), the student
may increase taxable income and may be required to file a
tax return. But this allows payments made in cash, by
check, by credit or debit card, or with borrowed funds such
as a student loan to be applied to qualified education ex-
penses.
Example 1—No scholarship. Bill, age 28 and unmar-
ried, enrolled full-time in 2023 as a first-year student at a
local college to earn a degree in law enforcement. This
was Bill’s first year of postsecondary education. During
2023, Bill paid $5,600 for qualified education expenses
and $4,400 for room and board for the fall 2023 semester.
Bill and the college meet all the requirements for the
American opportunity credit. Bill's adjusted gross income
(AGI) and MAGI, for purposes of figuring the credit, are
$37,350. Bill claims the standard deduction of $13,850,
resulting in taxable income of $23,500 and an income tax
liability before credits of $2,603. Bill claims no credits
other than the American opportunity credit. Bill figures the
American opportunity credit based on qualified education
expenses of $4,000, which results in a credit of $2,500
and a tax liability after credits of $103 ($2,603 − $2,500).
Example 2—Scholarship excluded from income.
The facts are the same as in Example 1—No scholarship,
except that Bill was awarded a $5,600 scholarship. Under
the terms of the scholarship, it may be used to pay any ed-
ucational expenses, including room and board. If Bill ex-
cludes the scholarship from income, it will be deemed (for
purposes of figuring the education credit) to have been
applied to pay tuition, required fees, and course materials.
Bill’s adjusted qualified education expenses would be zero
and there would be no education credit. Therefore, Bill's
tax liability after credits would be $2,603.
Example 3—Scholarship partially included in in-
come. The facts are the same as in Example 2—Scholar-
ship excluded from income. If, unlike Example 2, Bill in-
cludes $4,000 of the scholarship in income, the $4,000
will be deemed to have been applied to pay for room and
board. The remaining $1,600 of the $5,600 scholarship
would reduce the qualified education expenses, and the
adjusted qualified education expenses would be $4,000.
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Bill's AGI and MAGI would increase to $41,350, the taxa-
ble income would increase to $27,500, and the tax liability
before credits would increase to $3,083. Based on the ad-
justed qualified education expenses of $4,000, Bill would
be able to claim an American opportunity credit of $2,500
and the tax liability after credits would be $583 ($3,083 −
$2,500).
Example 4—Scholarship applied by the postse-
condary school to tuition. The facts are the same as in
Example 3—Scholarship partially included in income, ex-
cept the $5,600 scholarship is paid directly to the local
college. The fact that the local college applies the scholar-
ship to Bill's tuition and related fees doesn't prevent Bill
from including $4,000 of the scholarship in income. As in
Example 3, by doing so, Bill will be deemed to have ap-
plied $4,000 to pay for room and board. Bill would be able
to claim the American opportunity credit of $2,500 and the
tax liability after credits would be $583.
Example 5—Student with a dependent child. Jane,
age 28 and unmarried, enrolled full-time as a first-year
student at a local technical college to get a certificate as a
computer technician. This was Jane’s first year of postse-
condary education. During 2023, Jane paid $6,000 for
qualified education expenses. Jane and the college meet
all the requirements for the American opportunity credit.
Jane has a dependent child, age 10, who is a qualifying
child for purposes of receiving the earned income credit
(EIC) and the child tax credit. Jane's wages are $21,400.
Jane withheld no income taxes on these wages and has
no other income or adjustments. Jane was awarded a
$5,500 scholarship. Under the terms of the scholarship, it
may be used to pay tuition and any living expense, includ-
ing rent. Jane paid $10,000 in living expenses in 2023.
If Jane excludes the entire scholarship from income,
Jane will be deemed to have applied the entire scholar-
ship to pay qualified education expenses. The AGI and
MAGI would be $21,400. The tax liability before any cred-
its would be $61. The qualified education expenses would
be reduced to $500. Jane would be able to receive a $261
American opportunity credit ($200 refundable and $61
nonrefundable), a $1,600 additional child tax credit, and a
$3,995 EIC. In total, Jane would be able to receive a tax
refund of $5,795.
If Jane includes the entire scholarship in income, Jane
will be deemed to have applied the entire scholarship to
pay living expenses. The qualified education expenses
would be $6,000, and the AGI and MAGI would be
$26,900. The tax liability before any credits would be
$613. Jane would be able to receive a $1,613 American
opportunity credit ($1,000 refundable and $613 nonre-
fundable), a $1,600 additional child tax credit, and a
$3,138 EIC. In total, Jane would be able to receive a tax
refund of $5,738.
If Jane includes $3,500 of the scholarship in income,
Jane will be deemed to have applied $3,500 of the schol-
arship to pay living expenses, and $2,000 to pay qualified
education expenses. The qualified education expenses
would be $4,000, and the AGI and MAGI would be
$24,900. The tax liability before any credits would be
$413. Jane would be able to receive a $1,413 American
opportunity credit ($1,000 refundable and $413 nonre-
fundable), a $1,600 additional child tax credit, and a
$3,457 EIC. In total, Jane would be able to receive a tax
refund of $6,057.
If Jane includes $1,500 of the scholarship in income,
Jane will be deemed to have applied $1,500 of the schol-
arship to pay living expenses, and $4,000 to pay qualified
education expenses. The qualified education expenses
would be $2,000, and the AGI and MAGI would be
$22,900. The tax liability before any credits would be
$211. Jane would be able to receive a $1,011 American
opportunity credit ($800 refundable and $211 nonrefunda-
ble), a $1,600 additional child tax credit, and a $3,777
EIC. In total, Jane would be able to receive a tax refund of
$6,177. This is the highest tax refund among these sce-
narios.
Note. Whether you will benefit from applying a scholar-
ship or fellowship grant to nonqualified expenses will de-
pend on the amount of the student's qualified education
expenses, the amount of the scholarship or fellowship
grant, and whether the scholarship or fellowship grant may
(by its terms) be used for nonqualified expenses. Any ben-
efit will also depend on the student’s federal and state
marginal tax rates as well as any federal and state tax
credits the student claims. Before deciding, look at the to-
tal amount of your federal and state tax refunds or taxes
owed and, if the student is your dependent, the student’s
tax refunds or taxes owed. For example, if you are the stu-
dent and you also claim the EIC, choosing to apply a
scholarship or fellowship grant to nonqualified expenses
by including the amount in your income may benefit you if
the increase to your American opportunity credit is more
than the decrease to your EIC.
Expenses That Don't Qualify
Qualified education expenses don't include amounts paid
for:
•
Insurance;
•
Medical expenses (including student health fees);
•
Room and board;
•
Transportation; or
•
Similar personal, living, or family expenses.
This is true even if the amount must be paid to the institu-
tion as a condition of enrollment or attendance.
Sports, games, hobbies, and noncredit courses.
Qualified education expenses generally don't include ex-
penses that relate to any course of instruction or other ed-
ucation that involves sports, games, or hobbies, or any
noncredit course. However, if the course of instruction or
other education is part of the student's degree program,
these expenses can qualify.
Comprehensive or bundled fees. Some eligible educa-
tional institutions combine all of their fees for an academic
period into one amount. If you don't receive or don't have
access to an allocation showing how much you paid for
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qualified education expenses and how much you paid for
personal expenses, such as those listed earlier, contact
the institution. The institution is generally required to make
this allocation and provide you with the amount you paid
for qualified education expenses on Form 1098-T. See
Figuring the Credit, later, for more information about Form
1098-T.
Who Is an Eligible Student?
To claim the American opportunity credit, the student for
whom you pay qualified education expenses must be an
eligible student. This is a student who meets all of the fol-
lowing requirements.
•
The student didn't have expenses that were used to
figure an American opportunity credit in any 4 earlier
tax years.
•
The student hadn't completed the first 4 years of post-
secondary education (generally, the freshman, sopho-
more, junior, and senior years of college) before 2023.
•
For at least one academic period beginning in 2023
(or the first 3 months of 2024 if the qualified expenses
were paid in 2023), the student was enrolled at least
half-time in a program leading to a degree, certificate,
or other recognized educational credential.
•
The student hasn't been convicted of any federal or
state felony for possessing or distributing a controlled
substance as of the end of 2023.
These requirements are also shown in Figure 2-2.
Completion of first 4 years. A student has completed
the first 4 years of postsecondary education if the institu-
tion at which the student is enrolled awards the student 4
years of academic credit at that institution for coursework
completed by the student before 2023. This student gen-
erally wouldn't be an eligible student for purposes of the
American opportunity credit.
Exception. Any academic credit awarded solely on the
basis of the student's performance on proficiency exami-
nations is disregarded in determining whether the student
has completed 4 years of postsecondary education.
Enrolled at least half-time. A student was enrolled at
least half-time if the student was taking at least half the
normal full-time workload for their course of study.
The standard for what is half of the normal full-time
workload is determined by each eligible educational insti-
tution. However, the standard may not be lower than any
of those established by the U.S. Department of Education
under the Higher Education Act of 1965.
Example 1. Mack graduated from high school in June
2022. In September, Mack enrolled in an undergraduate
degree program at College U, and attended full-time for
both the 2022 fall and 2023 spring semesters. For the
2023 fall semester, Mack was enrolled less than half-time.
Because Mack was enrolled in an undergraduate degree
program on at least a half-time basis for at least one aca-
demic period that began in 2022 and at least one aca-
demic period that began in 2023, Mack is an eligible stu-
dent for tax years 2022 and 2023 (including the 2023 fall
semester when Mack enrolled at College U on less than a
half-time basis).
Example 2. After taking classes at College V on a
part-time basis for a few years, Shelly became a full-time
student for the 2023 spring semester. College V classified
Shelly as a second-semester senior (fourth year) for the
2023 spring semester and as a first-semester graduate
student (fifth year) for the 2023 fall semester. Because
College V didn't classify Shelly as having completed the
first 4 years of postsecondary education as of the begin-
ning of 2023, Shelly is an eligible student for tax year
2023. Therefore, the qualified education expenses paid for
the 2023 spring semester and the 2023 fall semester are
taken into account in figuring the American opportunity
credit for 2023.
Example 3. During the 2022 fall semester, Larry was a
high school student who took classes on a half-time basis
at College X. Larry wasn't enrolled as part of a degree pro-
gram at College X because College X only admits stu-
dents to a degree program if they have a high school di-
ploma or equivalent. Because Larry wasn't enrolled in a
degree program at College X during 2022, Larry wasn't an
eligible student for tax year 2022.
Example 4. The facts are the same as in Example 3.
During the 2023 spring semester, Larry again attended
College X but not as part of a degree program. Larry grad-
uated from high school in June 2023. For the 2023 fall se-
mester, Larry enrolled as a full-time student in College X
as part of a degree program, and College X awarded Larry
credit for the prior coursework at College X. Because
Larry was enrolled in a degree program at College X for
the 2023 fall term on at least a half-time basis, Larry is an
eligible student for all of tax year 2023. Therefore, the
qualified education expenses paid for classes taken at
College X during both the 2023 spring semester (during
which Larry wasn't enrolled in a degree program) and the
2023 fall semester are taken into account in figuring any
American opportunity credit.
Example 5. Dee graduated from high school in June
2022. In January 2023, Dee enrolled in a 1-year postse-
condary certificate program on a full-time basis to obtain a
certificate as a travel agent. Dee completed the program
in December 2023 and was awarded a certificate. In Janu-
ary 2024, Dee enrolled in a 1-year postsecondary certifi-
cate program on a full-time basis to obtain a certificate as
a computer programmer. Dee is an eligible student for
both tax years 2023 and 2024 because the degree re-
quirement, the workload requirement, and the year of
study requirement for those years have been met.
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Who Can Claim a
Dependent's Expenses?
If there are qualified education expenses for your depend-
ent during a tax year, either you or your dependent, but
not both of you, can claim an American opportunity credit
for your dependent's expenses for that year.
For you to claim an American opportunity credit for your
dependent's expenses, you must also claim your depend-
ent on your tax return. You do this by listing your
dependent's name and other required information on
Form 1040 or 1040-SR.
Figure 2-2. Who Is an Eligible Student for the American Opportunity Credit?
No
Yes
No
Yes
Yes
Yes
No
No
This chart is provided to help you quickly decide whether a student is eligible for the American
opportunity credit. See the text for more details.
Was the American opportunity credit claimed in at
least 4 prior tax years for this student?
The student is
an eligible student.
The student isn’t
an eligible student.
Did the student complete the rst 4 years of
postsecondary education before the beginning of the
tax year?
Was the student enrolled at least half-time in a
program leading to a degree, certicate, or other
recognized educational credential for at least one
academic period beginning during 2023 (or the rst
3 months of 2024 if the qualied expenses were paid
in 2023)?
Is the student free of any federal or state felony
conviction for possessing or distributing a controlled
substance as of the end of the tax year?
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IF you... THEN only...
claim on
your tax return a
dependent who is an
eligible student
you can claim the American
opportunity credit based on
that dependent's expenses.
The dependent can't claim
the credit.
don't claim on your tax
return a dependent who is
an eligible student (even if
entitled to claim the
dependent)
the dependent can claim the
American opportunity credit.
You can't claim the credit
based on this dependent's
expenses.
Expenses paid by dependent. If you claim on your tax
return an eligible student who is your dependent, treat any
expenses paid (or deemed paid) by your dependent as if
you had paid them. Include these expenses when figuring
the amount of your American opportunity credit.
Qualified education expenses paid directly to an
eligible educational institution for your dependent
under a court-approved divorce decree are trea-
ted as paid by your dependent.
Expenses paid by you. If you claim a dependent who is
an eligible student, only you can include any expenses
you paid when figuring the amount of the American oppor-
tunity credit. If neither you nor anyone else claims the de-
pendent, only the dependent can include any expenses
you paid when figuring the American opportunity credit.
Expenses paid by others. Someone other than you,
your spouse, or your dependent (such as a relative or for-
mer spouse) may make a payment directly to an eligible
educational institution to pay for an eligible student's quali-
fied education expenses. In this case, the student is trea-
ted as receiving the payment from the other person and, in
turn, paying the institution. If you claim the student as a
dependent on your tax return, you are considered to have
paid the expenses.
Example. In 2023, Todd’s grandparent makes a pay-
ment directly to an eligible educational institution for
Todd's qualified education expenses. For purposes of
claiming an American opportunity credit, Todd is treated
as receiving the money from the grandparent and, in turn,
paying the qualified education expenses himself.
Unless Todd is claimed as a dependent on someone
else's 2023 tax return, only Todd can use the payment to
claim an American opportunity credit.
If anyone, such as Todd's parents, claims Todd on their
2023 tax return, whoever claims Todd may be able to use
the expenses to claim an American opportunity credit. If
anyone else claims Todd, Todd can't claim an American
opportunity credit.
Tuition reduction. When an eligible educational institu-
tion provides a reduction in tuition to an employee of the
institution (or spouse or dependent child of an employee),
the amount of the reduction may or may not be taxable. If
it is taxable, the employee is treated as receiving a pay-
TIP
ment of that amount and, in turn, paying it to the educa-
tional institution on behalf of the student. For more infor-
mation on tuition reductions, see Qualified Tuition
Reduction in chapter 1.
Figuring the Credit
The amount of the American opportunity credit (per eligi-
ble student) is the sum of:
1. 100% of the first $2,000 of qualified education expen-
ses you paid for the eligible student, and
2. 25% of the next $2,000 of qualified education expen-
ses you paid for that student.
The maximum amount of American opportunity credit
you can claim in 2023 is $2,500 multiplied by the number
of eligible students. You can claim the full $2,500 for each
eligible student for whom you paid at least $4,000 of ad-
justed qualified education expenses. However, the credit
may be reduced based on your MAGI. See Effect of the
Amount of Your Income on the Amount of Your Credit,
later.
Example. Jack and Kay are married and file a joint tax
return. For 2023, they claim their dependent child on their
tax return. Their MAGI is $70,000. Their child is in the jun-
ior (third) year of studies at the local university. Jack and
Kay paid qualified education expenses of $4,300 in 2023.
Jack and Kay, their child, and the local university meet
all of the requirements for the American opportunity credit.
Jack and Kay can claim a $2,500 American opportunity
credit in 2023. This is 100% of the first $2,000 of qualified
education expenses, plus 25% of the next $2,000.
Form 1098-T. To help you figure your American opportu-
nity credit, the student may receive Form 1098-T. Gener-
ally, an eligible educational institution (such as a college or
university) must send Form 1098-T (or acceptable substi-
tute) to each enrolled student by January 31, 2024. An in-
stitution will report payments received (box 1) for qualified
education expenses. However, the amount on Form
1098-T might be different from what you paid. When figur-
ing the credit, use only the amounts you paid or are
deemed to have paid in 2023 for qualified education ex-
penses.
In addition, Form 1098-T should give other information
for that institution, such as adjustments made for prior
years, the amount of scholarships or grants, reimburse-
ments or refunds, and whether the student was enrolled at
least half-time or was a graduate student.
The eligible educational institution may ask for a com-
pleted Form W-9S, Request for Student's or Borrower's
Taxpayer Identification Number and Certification, or simi-
lar statement to obtain the student's name, address, and
TIN.
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To claim the American opportunity credit, you
must provide the educational institution's EIN on
your Form 8863. You should be able to obtain this
information from Form 1098-T or the educational institu-
tion.
Effect of the Amount of Your Income
on the Amount of Your Credit
The amount of your American opportunity credit is phased
out (gradually reduced) if your MAGI is between $80,000
and $90,000 ($160,000 and $180,000 if you file a joint re-
turn). You can't claim an American opportunity credit if
your MAGI is $90,000 or more ($180,000 or more if you
file a joint return).
Modified adjusted gross income (MAGI). For most
taxpayers, MAGI is adjusted gross income (AGI) as fig-
ured on their federal income tax return.
MAGI when using Form 1040 or 1040-SR. If you file
Form 1040 or 1040-SR, your MAGI is the AGI on line 11 of
that form, modified by adding back any:
1. Foreign earned income exclusion,
2. Foreign housing exclusion,
3. Foreign housing deduction,
4. Exclusion of income by bona fide residents of Ameri-
can Samoa, and
5. Exclusion of income by bona fide residents of Puerto
Rico.
You can use Worksheet 2-1 to figure your MAGI.
MAGI for the American
Opportunity Credit
Worksheet 2-1.
1. Enter your adjusted gross income
(Form 1040 or 1040-SR, line 11) ..........
1.
2. Enter your foreign earned income
exclusion and/or housing exclusion
(Form 2555, line 45) ...........
2.
3. Enter your foreign housing
deduction (Form 2555, line 50) ....
3.
4. Enter the amount of income from
Puerto Rico you are excluding ....
4.
5. Enter the amount of income from
American Samoa you are excluding
(Form 4563, line 15) ...........
5.
6. Add the amounts on
lines 2, 3, 4, and 5 ....................
6.
7. Add the amounts on lines 1 and 6.
This is your modified adjusted gross
income. Enter here and
on Form 8863, line 3 ..................
7.
Phaseout. If your MAGI is within the range of incomes
where the credit must be reduced, you will figure your re-
CAUTION
!
duced credit using lines 2–7 of Form 8863, Part I. The
same method is shown in the following example.
Example. You are filing a joint return and your MAGI is
$165,000. In 2023, you paid $5,000 of qualified education
expenses.
You figure a tentative American opportunity credit of
$2,500 (100% of the first $2,000 of qualified education ex-
penses, plus 25% of the next $2,000 of qualified educa-
tion expenses).
Because your MAGI is within the range of incomes
where the credit must be reduced, you must multiply your
tentative credit ($2,500) by a fraction. The numerator (top
part) of the fraction is $180,000 (the upper limit for those
filing a joint return) minus your MAGI. The denominator
(bottom part) is $20,000, the range of incomes for the
phaseout ($160,000 to $180,000). The result is the
amount of your phased out (reduced) American opportu-
nity credit ($1,875).
$2,500
×
$180,000-$165,000
= $1,875
$20,000
Refundable Part of Credit
Forty percent of the American opportunity credit is refund-
able for most taxpayers. However, if you were under age
24 at the end of 2023 and the conditions listed below ap-
ply to you, you can't claim any part of the American op-
portunity credit as a refundable credit on your tax return.
Instead, your allowed credit (figured on Form 8863, Part II)
will be used to reduce your tax as a nonrefundable credit
only.
You don't qualify for a refund if items 1 (a, b, or c), 2,
and 3 below apply to you.
1. You were:
a. Under age 18 at the end of 2023, or
b. Age 18 at the end of 2023 and your earned in-
come (defined below) was less than one-half of
your support (defined below), or
c. Over age 18 and under age 24 at the end of 2023
and a full-time student (defined below) and your
earned income (defined below) was less than
one-half of your support (defined below).
2. At least one of your parents was alive at the end of
2023.
3. You are filing a return as single, head of household,
qualifying surviving spouse, or married filing sepa-
rately for 2023.
Earned income. Earned income includes wages, salar-
ies, professional fees, and other payments received for
personal services actually performed. Earned income in-
cludes the part of any scholarship or fellowship grant that
represents payment for teaching, research, or other serv-
ices performed by the student that are required as a con-
dition for receiving the scholarship or fellowship grant.
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Earned income doesn't include that part of the compensa-
tion for personal services rendered to a corporation which
represents a distribution of earnings or profits rather than
a reasonable allowance as compensation for the personal
services actually rendered.
If you are a sole proprietor or a partner in a trade or
business in which both personal services and capital are
material income-producing factors, earned income also in-
cludes a reasonable allowance for compensation for per-
sonal services, but not more than 30% of your share of the
net profits from that trade or business (after subtracting
the deduction for one-half of self-employment tax). How-
ever, if capital isn't an income-producing factor and your
personal services produced the business income, the
30% limit doesn't apply.
Support. Your support includes food, shelter, clothing,
medical and dental care, education, and the like. Gener-
ally, the amount of the item of support will be the amount
of expenses incurred by the one furnishing such item. If
the item of support is in the form of property or lodging,
measure the amount of such item of support by its fair
market value. However, a scholarship received by you isn't
considered support if you are a full-time student. See Pub.
501 for details.
Full-time student. You are a full-time student for 2023 if
during any part of any 5 calendar months during the year
you were enrolled as a full-time student at an eligible edu-
cational institution (defined earlier), or took a full-time,
on-farm training course given by such an institution or by a
state, county, or local government agency.
Claiming the Credit
You claim the American opportunity credit by completing
Form 8863 and submitting it with your Form 1040 or
1040-SR. Enter the nonrefundable part of the credit on
Schedule 3 (Form 1040), line 3. Enter the refundable part
of the credit on Form 1040 or 1040-SR, line 29.
3.
Lifetime Learning Credit
Reminders
Modified adjusted gross income (MAGI) limits. For
2023, the amount of your lifetime learning credit is gradu-
ally reduced (phased out) if your MAGI is between
$80,000 and $90,000 ($160,000 and $180,000 if you file a
joint return). You can't claim the credit if your MAGI is
$90,000 or more ($180,000 or more if you file a joint re-
turn). For more information, see Figuring the Credit.
Form 1098-T requirement. To be eligible to claim the
lifetime learning credit, the law requires a taxpayer (or a
dependent) to have received Form 1098-T, Tuition State-
ment, from an eligible educational institution, whether do-
mestic or foreign.
However, you may claim the credit if the student doesn't
receive a Form 1098-T because the student's educational
institution isn't required to furnish a Form 1098-T to the
student under existing rules (for example, if the student is
a qualified nonresident alien, has qualified education ex-
penses paid entirely with scholarships, has qualified edu-
cation expenses paid under a formal billing arrangement,
or is enrolled in courses for which no academic credit is
awarded). If a student's educational institution isn't re-
quired to provide a Form 1098-T to the student, you may
claim the credit without a Form 1098-T if you otherwise
qualify, can demonstrate that you (or a dependent) were
enrolled at an eligible educational institution, and can sub-
stantiate the payment of qualified tuition and related ex-
penses.
You may also claim the credit if the student attended an
eligible educational institution required to furnish Form
1098-T but the student doesn't receive Form 1098-T be-
fore you file your tax return (for example, if the institution is
otherwise required to furnish the Form 1098-T and doesn't
furnish it or refuses to do so) and you take the following re-
quired steps: After January 31, 2024, but before you file
your 2023 tax return, you or the student must request that
the educational institution furnish a Form 1098-T. You
must fully cooperate with the educational institution's ef-
forts to gather the information needed to furnish the Form
1098-T. You must also otherwise qualify for the benefit, be
able to demonstrate that you (or a dependent) were enrol-
led at an eligible educational institution, and substantiate
the payment of qualified tuition and related expenses.
Introduction
For 2023, there are two tax credits available to help you
offset the costs of higher education by reducing the
amount of your income tax. They are the American oppor-
tunity credit and the lifetime learning credit. This chapter
discusses the lifetime learning credit. The American op-
portunity credit is discussed in chapter 2.
This chapter explains:
•
Who can claim the lifetime learning credit,
•
What expenses qualify for the credit,
•
Who is an eligible student,
•
Who can claim a dependent's expenses,
•
How to figure the credit,
•
How to claim the credit, and
•
When the credit must be repaid.
What is the tax benefit of the lifetime learning credit?
For the tax year, you may be able to claim a lifetime
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learning credit of up to $2,000 for qualified education ex-
penses paid for all eligible students. There is no limit on
the number of years the lifetime learning credit can be
claimed for each student.
A tax credit reduces the amount of income tax you may
have to pay. Unlike a deduction, which reduces the
amount of income subject to tax, a credit directly reduces
the tax itself. The lifetime learning credit is a nonrefunda-
ble credit. This means that it can reduce your tax to zero,
but if the credit is more than your tax, the excess won't be
refunded to you.
Your allowable lifetime learning credit may be limited by
the amount of your income and the amount of your tax.
Can you claim more than one education credit this
year? For each student, you can elect for any year only
one of the credits. For example, if you elect to claim the
lifetime learning credit for a child on your 2023 tax return,
you can't, for that same child, also claim the American op-
portunity credit for 2023.
If you are eligible to claim the lifetime learning credit
and you are also eligible to claim the American opportu-
nity credit for the same student in the same year, you can
choose to claim either credit, but not both.
If you claim the American opportunity credit for
any student, you can choose between using that
student's adjusted qualified education expenses
for the American opportunity credit or the lifetime learning
credit. If you have the choice, the American opportunity
credit will always be greater than the lifetime learning
credit.
If you pay qualified education expenses for more than
one student in the same year, you can choose to claim
certain credits on a per-student, per-year basis. This
means that, for example, you can claim the American op-
portunity credit for one student and the lifetime learning
credit for another student in the same year.
Differences between the American opportunity and
lifetime learning credits. There are several differences
between these two credits. For example, you can claim
the American opportunity credit for the same student for
no more than 4 tax years. However, there is no limit on the
number of years for which you can claim a lifetime learning
credit based on the same student's expenses. The differ-
ences between these credits are shown in the Appendix
near the end of this publication.
Overview of the lifetime learning credit for 2023. See
Table 3-1 for the basics of the credit. The details are dis-
cussed in this chapter.
Can You Claim the Credit?
The following rules will help you determine if you are eligi-
ble to claim the lifetime learning credit on your tax return.
TIP
Who Can Claim the Credit?
Generally, you can claim the lifetime learning credit if all
three of the following requirements are met.
•
You pay qualified education expenses of higher edu-
cation.
•
You pay the education expenses for an eligible stu-
dent.
•
The eligible student is either yourself, your spouse, or
a dependent you claim on your tax return.
Overview of the Lifetime
Learning Credit for 2023
Maximum credit Up to $2,000 credit per return
Limit on modified adjusted
gross income (MAGI)
$180,000 if married filling jointly;
$90,000 if single, head of household,
or qualifying surviving spouse
Refundable or
nonrefundable
Nonrefundable—credit limited to the
amount of tax you must pay on your
taxable income
Number of years of
postsecondary education
Available for all years of
postsecondary education and for
courses to acquire or improve job skills
Number of tax years credit
available
Available for an unlimited number of
tax years
Type of program required Student doesn't need to be pursuing a
program leading to a degree or other
recognized education credential
Number of courses Available for one or more courses
Felony drug conviction Felony drug convictions don't make
the student ineligible
Qualified expenses Tuition and fees required for
enrollment or attendance (including
amounts required to be paid to the
institution for course-related books,
supplies, and equipment)
Payments for academic
periods
Payments made in 2023 for academic
periods beginning in 2023 or
beginning in the first 3 months of 2024
Note. Qualified education expenses paid by a depend-
ent you claim on your tax return, or by a third party for that
dependent, are considered paid by you.
“Qualified education expenses” are defined later under
Qualified Education Expenses. “Eligible students” are de-
fined later under Who Is an Eligible Student. A dependent
you claim on your tax return is defined later under Who
Can Claim a Dependent's Expenses.
You may find Figure 3-1 helpful in determining if you
can claim a lifetime learning credit on your tax return.
Who Can't Claim the Credit?
You can't claim the lifetime learning credit for 2023 if any
of the following apply.
•
Your filing status is married filing separately.
Table 3-1.
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•
You are listed as a dependent on another person's tax
return (such as your parents'). See Who Can Claim a
Dependent's Expenses, later.
•
Your modified adjusted gross income (MAGI) is
$90,000 or more ($180,000 or more if filing married fil-
ing jointly). MAGI is explained later under Effect of the
Amount of Your Income on the Amount of Your Credit.
•
You (or your spouse) were a nonresident alien for any
part of 2023 and the nonresident alien didn't elect to
be treated as a resident alien for tax purposes. More
information on nonresident aliens can be found in Pub.
519.
•
You claim the American opportunity credit (see chap-
ter 2) for the same student in 2023.
What Expenses Qualify?
The lifetime learning credit is based on qualified education
expenses you pay for yourself, your spouse, or a depend-
ent you claim on your tax return. Generally, the credit is al-
lowed for qualified education expenses paid in 2023 for an
academic period beginning in 2023 or in the first 3 months
of 2024.
For example, if you paid $1,500 in December 2023 for
qualified tuition for the spring 2024 semester beginning in
January 2024, you may be able to use that $1,500 in figur-
ing your 2023 credit.
Academic period. An academic period includes a se-
mester, trimester, quarter, or other period of study (such
as a summer school session) as reasonably determined
by an educational institution. If an educational institution
uses credit hours or clock hours and doesn't have aca-
demic terms, each payment period can be treated as an
academic period.
Paid with borrowed funds. You can claim a lifetime
learning credit for qualified education expenses paid with
the proceeds of a loan. You use the expenses to figure the
lifetime learning credit for the year in which the expenses
are paid, not the year in which the loan is repaid. Treat
loan disbursements sent directly to the educational institu-
tion as paid on the date the institution credits the student's
account.
Student withdraws from class(es). You can claim a
lifetime learning credit for qualified education expenses
not refunded when a student withdraws.
Qualified Education Expenses
For purposes of the lifetime learning credit, qualified edu-
cation expenses are tuition and certain related expenses
required for enrollment in a course at an eligible educa-
tional institution. The course must be either part of a post-
secondary degree program or taken by the student to ac-
quire or improve job skills.
Eligible educational institution. An eligible educational
institution is any college, university, vocational school, or
other postsecondary educational institution eligible to par-
ticipate in a student aid program administered by the U.S.
Department of Education. Virtually all accredited public,
nonprofit, and proprietary (privately owned profit-making)
postsecondary institutions meet this definition.
An eligible educational institution also includes certain
educational institutions located outside the United States
that are eligible to participate in a student aid program ad-
ministered by the U.S. Department of Education.
The educational institution should be able to tell
you if it is an eligible educational institution.
Related expenses. Student activity fees and expenses
for course-related books, supplies, and equipment are in-
cluded in qualified education expenses only if the fees
and expenses must be paid to the institution for enrollment
or attendance.
Prepaid expenses. Qualified education expenses paid
in 2023 for an academic period that begins in the first 3
months of 2024 can be used in figuring an education
credit for 2023 only. See Academic period, earlier. For ex-
ample, if you pay $2,000 in December 2023 for qualified
tuition for the 2024 winter quarter that begins in January
2024, you can use that $2,000 in figuring an education
credit for 2023 only (if you meet all the other require-
ments).
You can't use any amount you paid in 2022 or
2024 to figure the qualified education expenses
you use to figure your 2023 education credit(s).
In the following examples, assume that each student is
an eligible student at an eligible educational institution.
Example 1. Jackson is a sophomore in University V's
degree program in dentistry. This year, in addition to tui-
tion, Jackson is required to pay a fee to the university for
the rental of the dental equipment that will be used in this
program. Because the equipment rental fee must be paid
to University V for enrollment and attendance, the equip-
ment rental fee is a qualified expense.
Example 2. Donna and Charles, both first-year stu-
dents at College W, are required to have certain books
and other reading materials to use in their mandatory
first-year classes. The college has no policy about how
students should obtain these materials, but any student
who purchases them from College W's bookstore will re-
ceive a bill directly from the college. Charles bought the
books from a friend, so what was paid for them isn't a
qualified education expense. Donna bought the books at
College W's bookstore. Although Donna paid College W
directly for the first-year books and materials, the payment
isn't a qualified expense because the books and materials
aren't required to be purchased from College W for enroll-
ment or attendance at the institution.
Example 3. When Marci enrolled at College X for
freshman year, a separate student activity fee in addition
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to tuition had to be paid. This activity fee is required of all
students, and is used solely to fund on-campus organiza-
tions and activities run by students, such as the student
newspaper and student government. No portion of the fee
covers personal expenses. Although labeled as a student
activity fee, the fee is required for Marci's enrollment and
attendance at College X. Therefore, it is a qualified ex-
pense.
No Double Benefit Allowed
You can't do any of the following.
•
Deduct higher education expenses on your income
tax return (as, for example, a business expense) and
also claim a lifetime learning credit based on those
same expenses.
•
Claim a lifetime learning credit for any student and use
any of that student's expenses in figuring your Ameri-
can opportunity credit.
•
Claim a lifetime learning credit based on the same ex-
penses used to figure the tax-free portion of a distribu-
tion from a Coverdell education savings account
(ESA) or qualified tuition program (QTP). See Coordi-
nation With American Opportunity and Lifetime Learn-
ing Credits in chapter 6 and Coordination With Ameri-
can Opportunity and Lifetime Learning Credits in
chapter 7.
•
Claim a credit based on qualified education expenses
paid with tax-free educational assistance, such as a
scholarship, grant, or assistance provided by an em-
ployer. See Adjustments to Qualified Education Ex-
penses next.
Adjustments to Qualified Education
Expenses
For each student, reduce the qualified education expen-
ses paid by or on behalf of that student under the following
rules. The result is the amount of adjusted qualified edu-
cation expenses for each student.
Tax-free educational assistance. For tax-free educa-
tional assistance received in 2023, reduce the qualified
educational expenses for each academic period by the
amount of tax-free educational assistance allocable to that
academic period. See Academic period, earlier.
Some tax-free educational assistance received after
2023 may be treated as a refund of qualified education ex-
penses paid in 2023. This tax-free educational assistance
is any tax-free educational assistance received by you or
anyone else after 2023 for qualified education expenses
paid on behalf of a student in 2023 (or attributable to en-
rollment at an eligible educational institution during 2023).
If this tax-free educational assistance is received after
2023 but before you file your 2023 income tax return, see
Refunds received after 2023 but before your income tax
return is filed, later. If this tax-free educational assistance
is received after 2023 and after you file your 2023 income
tax return, see Refunds received after 2023 and after your
income tax return is filed, later.
Tax-free educational assistance includes:
•
The tax-free part of scholarships and fellowship grants
(see Tax-Free Scholarships and Fellowship Grants in
chapter 1);
•
The tax-free part of Pell grants (see Pell Grants and
Other Title IV Need-Based Education Grants in chap-
ter 1);
•
Employer-provided educational assistance (see chap-
ter 10);
•
Veterans' educational assistance (see Veterans' Bene-
fits in chapter 1); and
•
Any other nontaxable (tax-free) payments (other than
gifts or inheritances) received as educational assis-
tance.
Generally, any scholarship or fellowship grant is treated
as tax free. However, a scholarship or fellowship grant isn't
treated as tax free to the extent the student includes it in
gross income (the student may or may not be required to
file a tax return for the year the scholarship or fellowship
grant is received) and either of the following is true.
•
The scholarship or fellowship grant (or any part of it)
must be applied (by its terms) to expenses (such as
room and board) other than qualified education ex-
penses as defined in Qualified education expenses in
chapter 1.
•
The scholarship or fellowship grant (or any part of it)
may be applied (by its terms) to expenses (such as
room and board) other than qualified education ex-
penses as defined in Qualified education expenses in
chapter 1.
A student can't choose to include in income a
scholarship or fellowship grant provided by an In-
dian tribal government that is excluded from in-
come under the Tribal General Welfare Exclusion Act of
2014 or benefits provided by an educational program de-
scribed in Revenue Procedure 2014-35, section 5.02(2)(b)
(ii), available at IRS.gov/irb/2014-26_IRB#RP-2014-35.
You may be able to increase the combined value
of an education credit if the student includes
some or all of a scholarship or fellowship grant in
income in the year it is received. For examples, see Coor-
dination with Pell grants and other scholarships, later.
Refunds. A refund of qualified education expenses may
reduce adjusted qualified education expenses for the tax
year or require repayment (recapture) of a credit claimed
in an earlier year. Some tax-free educational assistance
received after 2023 may be treated as a refund. See
Tax-free educational assistance, earlier.
Refunds received in 2023. For each student, figure
the adjusted qualified education expenses for 2023 by
adding all the qualified education expenses for 2023 and
subtracting any refunds of those expenses received from
the eligible educational institution during 2023.
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Figure 3-1. Can You Claim the Lifetime Learning Credit for 2023?
Did you pay qualied education expenses in 2023 for an eligible student?*
Did the academic period for which you paid qualied education
expenses begin in 2023 or the rst 3 months of 2024?
Is the eligible student you, your spouse (if married ling jointly), or your
dependent you claim on your tax return?
Are you listed as a dependent on another person’s tax return?
Is your ling status married ling separately?
For any part of 2023, were you (or your spouse) a nonresident alien who
didn’t elect to be treated as a resident alien for tax purposes?
Is your modied adjusted gross income (MAGI) less than $90,000
($180,000 if married ling jointly)?
Are you claiming an American opportunity credit for the same student?
Did you use the same expenses to claim a deduction or credit?
Were the same expenses paid with a tax-free scholarship, grant, or
employer-provided educational assistance?
Did you, or someone else, receive a refund of all the expenses?
Do you have a tax liability (Form 1040 or 1040-SR, line 18, minus
Schedule 3 (Form 1040), lines 1, 2, 6d, and 6l)?
No
No
No
Yes
Yes
Yes
No
No
Yes
Yes
Yes
Yes
Yes
No
Yes
Yes
No
No
Yes
Yes
No
No
No
No
**Your education credits may be limited to your tax liability minus certain credits. See Form 8863 for more details.
You can claim
the lifetime
learning credit
for 2023.**
You can’t
claim the lifetime
learning credit for
2023.
*Qualified education expenses paid by a dependent you claim on your tax return, or by a third party for that dependent, are considered paid by
you.
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Refunds received after 2023 but before your in-
come tax return is filed. If anyone receives a refund af-
ter 2023 of qualified education expenses paid on behalf of
a student in 2023 and the refund is paid before you file an
income tax return for 2023, the amount of qualified educa-
tion expenses for 2023 is reduced by the amount of the re-
fund.
Refunds received after 2023 and after your income
tax return is filed. If anyone receives a refund after 2023
of qualified education expenses paid on behalf of a stu-
dent in 2023 and the refund is paid after you file an in-
come tax return for 2023, you may need to repay some or
all of the credit. See Credit recapture next.
Credit recapture. If any tax-free educational assistance
for the qualified education expenses paid in 2023 or any
refund of your qualified education expenses paid in 2023
is received after you file your 2023 income tax return, you
must recapture (repay) any excess credit. You do this by
refiguring the amount of your adjusted qualified education
expenses for 2023 by reducing the expenses by the
amount of the refund or tax-free educational assistance.
You then refigure your education credit(s) for 2023 and fig-
ure the amount by which your 2023 tax liability would have
increased if you had claimed the refigured credit(s). In-
clude that amount as an additional tax for the year the re-
fund or tax-free assistance was received.
Example. You pay $9,300 in tuition and fees in De-
cember 2023, and your child began college in January
2024. You filed your 2023 tax return on February 14, 2024,
and claimed a lifetime learning credit of $1,860. You
claimed no other tax credits. After you filed your return,
your child withdrew from two courses and you received a
refund of $2,900. You must refigure your 2023 lifetime
learning credit using $6,400 of qualified education expen-
ses instead of $9,300. The refigured credit is $1,280 and
your tax liability increased by $580. See the instructions
for your 2024 income tax return to determine where to in-
clude this tax.
If you pay qualified education expenses in both
2023 and 2024 for an academic period that be-
gins in the first 3 months of 2024 and you receive
tax-free educational assistance, or a refund, as described
above, you may choose to reduce your qualified education
expenses for 2024 instead of reducing your expenses for
2023.
Amounts that don't reduce qualified education ex-
penses. Don't reduce qualified education expenses by
amounts paid with funds the student receives as:
•
Payment for services, such as wages;
•
A loan;
•
A gift;
•
An inheritance; or
•
A withdrawal from the student's personal savings.
TIP
Don't reduce the qualified education expenses by any
scholarship or fellowship grant reported as income on the
student's tax return in the following situations.
•
The use of the money is restricted, by the terms of the
scholarship or fellowship grant, to costs of attendance
(such as room and board) other than qualified educa-
tion expenses, as defined in Qualified education ex-
penses in chapter 1.
•
The use of the money isn't restricted.
For examples, see Adjustments to Qualified Education Ex-
penses in chapter 2.
Coordination with Pell grants and other scholarships.
You may be able to increase your lifetime learning credit
when the student (you, your spouse, or your dependent)
includes certain scholarships or fellowship grants in the
student’s gross income. Your credit may increase only if
the amount of the student's qualified education expenses
minus the total amount of scholarships and fellowship
grants is less than $10,000. If this situation applies, con-
sider including some or all of the scholarship or fellowship
grant in the student's income in order to treat the included
amount as paying nonqualified expenses instead of quali-
fied education expenses. Nonqualified expenses are ex-
penses such as room and board that aren't qualified edu-
cation expenses such as tuition and related fees.
Scholarships and fellowship grants that the student in-
cludes in income don't reduce the student's qualified edu-
cation expenses available to figure your lifetime learning
credit. Thus, including enough of the scholarship or fellow-
ship grant in the student's income to report up to $10,000
in qualified education expenses for your lifetime learning
credit may increase the credit by enough to increase your
tax refund or reduce the amount of tax you owe even con-
sidering any increased tax liability from the additional in-
come. However, the increase in tax liability as well as the
loss of other tax credits may be greater than the additional
lifetime learning credit and may cause your tax refund to
decrease or the amount of tax you owe to increase. Your
specific circumstances will determine what amount, if any,
of the scholarship or fellowship grant to include in income
to maximize your tax refund or minimize the amount of tax
you owe.
The scholarship or fellowship grant must be one that
may qualify as a tax-free scholarship under the rules dis-
cussed in chapter 1. Also, the scholarship or fellowship
grant must be one that may (by its terms) be used for non-
qualified expenses. Finally, the amount of the scholarship
or fellowship grant that is applied to nonqualified expen-
ses can't exceed the amount of the student's actual non-
qualified expenses that are paid in the tax year. This
amount may differ from the student's living expenses esti-
mated by the student's school in figuring the official cost of
attendance under student aid rules.
The fact that the educational institution applies the
scholarship or fellowship grant to qualified education ex-
penses, such as tuition and related fees, doesn't prevent
the student from choosing to apply certain scholarships or
fellowship grants to the student's actual nonqualified ex-
penses. By making this choice (that is, by including the
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part of the scholarship or fellowship grant applied to the
student's nonqualified expenses in income), the student
may increase taxable income and may be required to file a
tax return. But this allows payments made in cash, by
check, by credit or debit card, or with borrowed funds such
as a student loan to be applied to qualified education ex-
penses.
Example 1—No scholarship. Judy, who is unmar-
ried, is taking courses at a public community college to be
recertified to teach in public schools. The adjusted gross
income (AGI) and the MAGI, for purposes of the credit, are
$28,700. Judy claims the standard deduction of $13,850,
resulting in taxable income of $14,850 and a tax liability
before credits of $1,565. Judy claims no credits other than
the lifetime learning credit. In July 2023, Judy paid $700
for the summer 2023 semester; in August 2023, Judy paid
$1,900 for the fall 2023 semester; and in December 2023,
Judy paid another $1,900 for the spring semester begin-
ning in January 2024. Judy and the college meet all re-
quirements for the lifetime learning credit. All of the $4,500
tuition paid in 2023 can be used when figuring the 2023
lifetime learning credit. Judy claims a $900 lifetime learn-
ing credit and the tax liability after credits is $665.
Example 2—Scholarship excluded from income.
The facts are the same as in Example 1—No scholarship,
except that Judy was awarded a $1,500 scholarship. Un-
der the terms of the scholarship, it may be used to pay any
educational expenses, including room and board. If the
scholarship is excluded from income, Judy will be deemed
(for purposes of figuring the education credit) to have ap-
plied the scholarship to pay for tuition, required fees, and
course materials. Only $3,000 of the $4,500 tuition paid in
2023 could be used when figuring the 2023 lifetime learn-
ing credit. The lifetime learning credit would be reduced to
$600 and the tax liability after credits would be $965.
Example 3—Scholarship included in income. The
facts are the same as in Example 2—Scholarship exclu-
ded from income. If, unlike Example 2, Judy includes the
$1,500 scholarship in income, Judy will be deemed to
have applied the entire scholarship to pay for room and
board. Judy's AGI and MAGI would increase to $30,200,
the taxable income would be $16,350, and the tax liability
before credits would be $1,745. Judy would be able to use
the $4,500 of adjusted qualified education expenses to
figure the credit. Judy could claim a $900 lifetime learning
credit and the tax liability after credits would be $845.
Example 4—Scholarship applied by the postse-
condary school to tuition. The facts are the same as in
Example 3—Scholarship included in income, except the
$1,500 scholarship is paid directly to the public commun-
ity college. The fact that the public community college ap-
plies the scholarship to Judy's tuition and related fees
doesn't prevent Judy from including the $1,500 scholar-
ship in income. As in Example 3, by doing so, Judy will be
deemed to have applied the entire scholarship to pay for
room and board. Judy could claim the $900 lifetime learn-
ing credit and the tax liability after credits would be $845.
Note. Whether you will benefit from applying a scholar-
ship or fellowship grant to nonqualified expenses will de-
pend on the amount of the student's qualified education
expenses, the amount of the scholarship or fellowship
grant, and whether the scholarship or fellowship grant may
(by its terms) be used for nonqualified expenses. Any ben-
efit will also depend on the student's federal and state
marginal tax rates as well as any federal and state tax
credits the student claims. Before deciding, look at the to-
tal amount of your federal and state tax refunds or taxes
owed and, if the student is your dependent, the student's
tax refunds or taxes owed. For example, if you are the stu-
dent and you also claim the earned income credit, choos-
ing to apply a scholarship or fellowship grant to nonquali-
fied expenses by including the amount in your income
may not benefit you if the decrease to your earned income
credit as a result of including the scholarship or fellowship
grant in income is more than the increase to your lifetime
learning credit as a result of including this amount in in-
come.
Expenses That Don't Qualify
Qualified education expenses don't include amounts paid
for:
•
Insurance;
•
Medical expenses (including student health fees);
•
Room and board;
•
Transportation; or
•
Similar personal, living, or family expenses.
This is true even if the amount must be paid to the institu-
tion as a condition of enrollment or attendance.
Sports, games, hobbies, and noncredit courses.
Qualified education expenses generally don't include ex-
penses that relate to any course of instruction or other ed-
ucation that involves sports, games, or hobbies, or any
noncredit course. However, if the course of instruction or
other education is part of the student's degree program or
is taken by the student to acquire or improve job skills,
these expenses can qualify.
Comprehensive or bundled fees. Some eligible educa-
tional institutions combine all of their fees for an academic
period into one amount. If you don't receive or don't have
access to an allocation showing how much you paid for
qualified education expenses and how much you paid for
personal expenses, such as those listed above, contact
the institution. The institution is generally required to make
this allocation and provide you with the amount you paid
for qualified education expenses on Form 1098-T. See
Figuring the Credit, later, for more information about Form
1098-T.
Who Is an Eligible Student?
For purposes of the lifetime learning credit, an eligible stu-
dent is a student who is enrolled in one or more courses at
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an eligible educational institution (as defined under Quali-
fied Education Expenses, earlier).
Who Can Claim a
Dependent's Expenses?
If there are qualified education expenses for your depend-
ent during a tax year, either you or your dependent, but
not both of you, can claim a lifetime learning credit for your
dependent's expenses for that year.
For you to claim a lifetime learning credit for your de-
pendent's expenses, you must also claim your dependent
on your tax return. You do this by listing your dependent's
name and other required information on Form 1040 or
1040-SR.
IF you... THEN only...
claim on your tax return a
dependent who is an
eligible student
you can claim the lifetime
learning credit based on
that dependent's expenses.
The dependent can't claim
the credit.
don't claim on your tax
return a dependent who is
an eligible student (even if
entitled to claim the
dependent)
the dependent can claim the
lifetime learning credit. You
can't claim the credit based
on this dependent's
expenses.
Expenses paid by dependent. If you claim on your tax
return an eligible student who is your dependent, treat any
expenses paid (or deemed paid) by your dependent as if
you had paid them. Include these expenses when figuring
the amount of your lifetime learning credit.
Qualified education expenses paid directly to an
eligible educational institution for your dependent
under a court-approved divorce decree are trea-
ted as paid by your dependent.
Expenses paid by you. If you claim a dependent who is
an eligible student, only you can include any expenses
you paid when figuring the amount of the lifetime learning
credit. If neither you nor anyone else claims the depend-
ent, only the dependent can include any expenses you
paid when figuring the lifetime learning credit.
Expenses paid by others. Someone other than you,
your spouse, or your dependent (such as a relative or for-
mer spouse) may make a payment directly to an eligible
educational institution to pay for an eligible student's quali-
fied education expenses. In this case, the student is trea-
ted as receiving the payment from the other person and, in
turn, paying the institution. If you claim the student as a
dependent on your tax return, you are considered to have
paid the expenses.
TIP
Example. In 2023, Todd’s grandparent makes a pay-
ment directly to an eligible educational institution for
Todd‘s qualified education expenses. For purposes of
claiming a lifetime learning credit, Todd is treated as re-
ceiving the money from the grandparent and, in turn, pay-
ing the qualified education expenses.
Unless Todd is claimed as a dependent on someone
else's 2023 tax return, only Todd can use the payment to
claim a lifetime learning credit.
If anyone, such as Todd's parents, claims Todd on their
2023 tax return, whoever claims Todd may be able to use
the expenses to claim a lifetime learning credit. If anyone
else claims Todd, Todd can't claim a lifetime learning
credit.
Tuition reduction. When an eligible educational institu-
tion provides a reduction in tuition to an employee of the
institution (or spouse or dependent child of an employee),
the amount of the reduction may or may not be taxable. If
it is taxable, the employee is treated as receiving a pay-
ment of that amount and, in turn, paying it to the educa-
tional institution on behalf of the student. For more infor-
mation on tuition reductions, see Qualified Tuition
Reduction in chapter 1.
Figuring the Credit
The amount of the lifetime learning credit is 20% of the
first $10,000 of qualified education expenses you paid for
all eligible students. The maximum amount of lifetime
learning credit you can claim for 2023 is $2,000 (20% ×
$10,000). However, that amount may be reduced based
on your MAGI. See Effect of the Amount of Your Income
on the Amount of Your Credit, later.
Example. Bruce and Toni are married and file a joint
tax return. For 2023, their MAGI is $75,000. Toni is attend-
ing a local college (an eligible educational institution) to
earn credits toward a degree in nursing. Toni already has
a bachelor's degree in history and wants to become a
nurse. In August 2023, Toni paid $5,000 of qualified edu-
cation expenses for the fall 2023 semester. Bruce and
Toni can claim a $1,000 (20% × $5,000) lifetime learning
credit on their 2023 joint tax return.
Form 1098-T. To help you figure your lifetime learning
credit, the student may receive Form 1098-T. Generally, an
eligible educational institution (such as a college or univer-
sity) must send Form 1098-T (or acceptable substitute) to
each enrolled student by January 31, 2024. An institution
will report payments received (box 1) for qualified educa-
tion expenses. However, the amount on Form 1098-T
might be different from what you paid. When figuring the
credit, use only the amounts you paid or are deemed to
have paid in 2023 for qualified education expenses.
In addition, Form 1098-T should give other information
for that institution, such as adjustments made for prior
years, the amount of scholarships or grants, reimburse-
ments or refunds, and whether the student was enrolled at
least half-time or was a graduate student.
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The eligible educational institution may ask for a com-
pleted Form W-9S or similar statement to obtain the stu-
dent's name, address, and taxpayer identification number.
Effect of the Amount of Your Income
on the Amount of Your Credit
The amount of your lifetime learning credit is phased out
(gradually reduced) if your MAGI is between $80,000 and
$90,000 ($160,000 and $180,000 if you file a joint return).
You can't claim a lifetime learning credit if your MAGI is
$90,000 or more ($180,000 or more if you file a joint re-
turn).
Modified adjusted gross income (MAGI). For most
taxpayers, MAGI is adjusted gross income (AGI) as fig-
ured on their federal income tax return.
MAGI when using Form 1040 or 1040-SR. If you file
Form 1040 or 1040-SR, your MAGI is the AGI on line 11 of
that form, modified by adding back any:
1. Foreign earned income exclusion,
2. Foreign housing exclusion,
3. Foreign housing deduction,
4. Exclusion of income by bona fide residents of Ameri-
can Samoa, and
5. Exclusion of income by bona fide residents of Puerto
Rico.
You can use Worksheet 3-1 to figure your MAGI.
MAGI for the Lifetime
Learning Credit
1. Enter your adjusted gross income
(Form 1040 or 1040-SR, line 11) .......
1.
2. Enter your foreign earned
income exclusion and/or
housing exclusion (Form
2555, line 45) ..........
2.
3. Enter your foreign housing
deduction (Form 2555,
line 50) ...............
3.
4. Enter the amount of
income from Puerto Rico
you’re excluding ........
4.
5. Enter the amount of
income from American
Samoa you’re excluding
(Form 4563,
line 15) ...............
5.
6. Add the amounts on
lines 2, 3, 4, and 5 ..................
6.
7. Add the amounts on lines 1 and 6.
This is your modified adjusted gross
income. Enter this amount
on Form 8863, line 14 ...............
7.
Worksheet 3-1.
Phaseout. If your MAGI is within the range of incomes
where the credit must be reduced, you will figure your re-
duced credit using lines 10–18 of Form 8863. The same
method is shown in the following example.
Example. You are filing a joint return with a MAGI of
$161,000. In 2023, you paid $6,600 of qualified education
expenses.
You figure the tentative lifetime learning credit (20% of
the first $10,000 of qualified education expenses you paid
for all eligible students). The result is a $1,320 (20% x
$6,600) tentative credit.
Because your MAGI is within the range of incomes
where the credit must be reduced, you must multiply your
tentative credit ($1,320) by a fraction. The numerator (top
part) of the fraction is $180,000 (the upper limit for those
filing a joint return) minus your MAGI. The denominator
(bottom part) is $20,000, the range of incomes for the
phaseout ($160,000 to $180,000). The result is the
amount of your phased-out (reduced) lifetime learning
credit ($1,254).
$1,320
×
$180,000 - $161,000
= $1,254
$20,000
Claiming the Credit
You claim the lifetime learning credit by completing Form
8863 and submitting it with your Form 1040 or 1040-SR.
Enter the credit on Schedule 3 (Form 1040), line 3.
4.
Student Loan Interest
Deduction
What’s New
Modified adjusted gross income (MAGI) limits. For
2023, the amount of your student loan interest deduction
is gradually reduced (phased out) if your MAGI is between
$75,000 and $90,000 ($155,000 and $185,000 if you file a
joint return). You can’t claim the deduction if your MAGI is
$90,000 or more ($185,000 or more if you file a joint re-
turn). For more information, see Figuring the Deduction.
Reminder
No double benefit allowed. You can’t deduct as interest
on a student loan any interest paid by your employer after
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March 27, 2020, and before January 1, 2026, under an
educational assistance program. See No Double Benefit
Allowed.
Introduction
Generally, personal interest you pay, other than certain
mortgage interest, isn't deductible on your tax return.
However, if your MAGI is less than $90,000 ($185,000 if
filing a joint return), you may be allowed a special deduc-
tion for paying interest on a student loan (also known as
an education loan) used for higher education. For most
taxpayers, MAGI is the adjusted gross income (AGI) as
figured on their federal income tax return before subtract-
ing any deduction for student loan interest. This deduction
can reduce the amount of your income subject to tax by
up to $2,500.
The student loan interest deduction is claimed as an
adjustment to income. This means you can claim this de-
duction even if you don't itemize deductions on Sched-
ule A (Form 1040).
This chapter explains:
•
What type of loan interest you can deduct,
•
Whether you can claim the deduction,
•
What expenses you must have paid with the student
loan,
•
Who is an eligible student,
•
How to figure the deduction, and
•
How to claim the deduction.
Student Loan Interest Deduction
at a Glance
This table summarizes the features of the
student loan interest deduction.
Don't rely on this table alone. Refer to the
text for more details.
Feature Description
Maximum benefit You can reduce your income subject to tax
by up to $2,500.
Loan qualifications Your student loan:
• Must have been taken out solely to pay
qualified education expenses, and
• Can't be from a related person or made
under a qualified employer plan.
Student qualifications The student must be:
• You, your spouse, or your dependent (as
defined later for this purpose); and
• Enrolled at least half-time in a program
leading to a degree, certificate, or other
recognized educational credential at an
eligible educational institution.
Limit on MAGI $185,000 if married filing a joint return;
$90,000 if single, head of household, or
qualifying surviving spouse.
Table 4-1.
Student Loan Interest Defined
Student loan interest is interest you paid during the year
on a qualified student loan. It includes both required and
voluntary interest payments.
Qualified Student Loan
This is a loan you took out solely to pay qualified educa-
tion expenses (defined later) that were:
•
For you, your spouse, or a person who was your de-
pendent (as defined later for this purpose) when you
took out the loan;
•
Paid or incurred within a reasonable period of time be-
fore or after you took out the loan; and
•
For education provided during an academic period for
an eligible student.
Loans from the following sources aren't qualified stu-
dent loans.
•
A related person.
•
A qualified employer plan.
Your dependent. Generally, your dependent is someone
who is either a:
•
Qualifying child, or
•
Qualifying relative.
You can find more information about dependents in Pub.
501.
For this purpose, the term “dependent” also includes
any person you could have claimed as a dependent on
your return except that:
•
You, or your spouse if filing jointly, could be claimed as
a dependent of another taxpayer (like on your parent’s
tax return);
•
The person filed a joint return; or
•
The person had gross income for the year that was
equal to or more than $4,700 (for 2023).
Reasonable period of time. Qualified education expen-
ses are treated as paid or incurred within a reasonable pe-
riod of time before or after you take out the loan if they are
paid with the proceeds of student loans that are part of a
federal postsecondary education loan program.
Even if not paid with the proceeds of that type of loan,
the expenses are treated as paid or incurred within a rea-
sonable period of time if both of the following require-
ments are met.
•
The expenses relate to a specific academic period.
•
The loan proceeds are disbursed within a period that
begins 90 days before the start of that academic pe-
riod and ends 90 days after the end of that academic
period.
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If neither of the above situations applies, the reasona-
ble period of time is usually determined based on all the
relevant facts and circumstances.
Academic period. An academic period includes a se-
mester, trimester, quarter, or other period of study (such
as a summer school session) as reasonably determined
by an educational institution. If an educational institution
uses credit hours or clock hours and doesn't have aca-
demic terms, each payment period can be treated as an
academic period.
Eligible student. An eligible student is a student who
was enrolled at least half-time in a program leading to a
degree, certificate, or other recognized educational cre-
dential.
Enrolled at least half-time. A student was enrolled at
least half-time if the student was taking at least half the
normal full-time workload for their course of study.
The standard for what is half of the normal full-time
workload is determined by each eligible educational insti-
tution. However, the standard may not be lower than any
of those established by the U.S. Department of Education
under the Higher Education Act of 1965.
Related person. You can't deduct interest on a loan you
get from a related person. Related persons include:
•
Your spouse;
•
Your brothers and sisters;
•
Your half brothers and half sisters;
•
Your ancestors (parents, grandparents, etc.);
•
Your lineal descendants (children, grandchildren,
etc.); and
•
Certain corporations, partnerships, trusts, and exempt
organizations.
Qualified employer plan. You can't deduct interest on a
loan made under a qualified employer plan or under a
contract purchased under such a plan.
Qualified Education Expenses
For purposes of the student loan interest deduction, these
expenses are the total costs of attending an eligible edu-
cational institution. They include amounts paid for the fol-
lowing items.
•
Tuition and fees.
•
Room and board.
•
Books, supplies, and equipment.
•
Other necessary expenses (such as transportation).
The cost of room and board qualifies only to the extent
it isn't more than:
•
The allowance for room and board, as determined by
the eligible educational institution, that was included in
the cost of attendance (for federal financial aid purpo-
ses) for a particular academic period and living
arrangement of the student; or
•
If greater, the actual amount charged if the student is
residing in housing owned or operated by the eligible
educational institution.
Eligible educational institution. An eligible educational
institution is generally any college, university, vocational
school, or other postsecondary educational institution eli-
gible to participate in a student aid program administered
by the U.S. Department of Education. Virtually all accredi-
ted public, nonprofit, and proprietary (privately owned
profit-making) postsecondary institutions meet this defini-
tion.
An eligible educational institution also includes certain
educational institutions located outside the United States
that are eligible to participate in a student aid program ad-
ministered by the U.S. Department of Education.
For purposes of the student loan interest deduction, an
eligible educational institution also includes an institution
conducting an internship or residency program leading to
a degree or certificate from an institution of higher educa-
tion, a hospital, or a health care facility that offers post-
graduate training.
An educational institution must meet the above criteria
only during the academic period(s) for which the student
loan was incurred. The deductibility of interest on the loan
isn't affected by the institution's subsequent loss of eligibil-
ity.
The educational institution should be able to tell
you if it is an eligible educational institution.
Adjustments to Qualified Education
Expenses
You must reduce your qualified education expenses by the
total amount paid for them with the following tax-free
items.
•
Employer-provided educational assistance. See chap-
ter 10.
•
Tax-free distribution of earnings from a Coverdell edu-
cation savings account (ESA). See Tax-Free Distribu-
tions in chapter 6.
•
Tax-free distribution of earnings from a qualified tuition
program (QTP). See Figuring the Taxable Portion of a
Distribution in chapter 7.
•
U.S. savings bond interest that you exclude from in-
come because it is used to pay qualified education ex-
penses. See chapter 9.
•
The tax-free part of scholarships and fellowship
grants. See Tax-Free Scholarships and Fellowship
Grants in chapter 1.
•
Veterans' educational assistance. See Veterans' Ben-
efits in chapter 1.
•
Any other nontaxable (tax-free) payments (other than
gifts or inheritances) received as educational assis-
tance.
TIP
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Include as Interest
In addition to simple interest on the loan, if all other re-
quirements are met, the items discussed below can be
student loan interest.
Loan origination fee. In general, this is a one-time fee
charged by the lender when a loan is made. To be deduc-
tible as interest, a loan origination fee must be for the use
of money rather than for property or services (such as
commitment fees or processing costs) provided by the
lender. A loan origination fee treated as interest accrues
over the life of the loan.
Loan origination fees weren't required to be reported on
Form 1098-E, Student Loan Interest Statement, for loans
made before September 1, 2004. If loan origination fees
aren't included in the amount reported on your Form
1098-E, you can use any reasonable method to allocate
the loan origination fees over the term of the loan.
Capitalized interest. This is unpaid interest on a student
loan that is added by the lender to the outstanding princi-
pal balance of the loan. Capitalized interest is treated as
interest for tax purposes and is deductible as payments of
principal are made on the loan. No deduction for capital-
ized interest is allowed in a year in which no loan pay-
ments were made.
Interest on revolving lines of credit. This interest,
which includes interest on credit card debt, is student loan
interest if the borrower uses the line of credit (credit card)
only to pay qualified education expenses. See Qualified
Education Expenses, earlier.
Interest on refinanced and consolidated student
loans. This includes interest on a loan used solely to refi-
nance a qualified student loan of the same borrower. It
also includes a single consolidation loan used solely to re-
finance two or more qualified student loans of the same
borrower.
If you refinance a qualified student loan for more
than your original loan and you use the additional
amount for any purpose other than qualified edu-
cation expenses, you can't deduct any interest paid on the
refinanced loan.
Allocating Payments Between Interest and
Principal
The allocation of payments between interest and principal
for tax purposes might not be the same as the allocation
shown on the Form 1098-E or other statement you receive
from the lender or loan servicer. To make the allocation for
tax purposes, a payment generally applies first to stated
interest that remains unpaid as of the date the payment is
due, second to any loan origination fees allocable to the
payment, third to any capitalized interest that remains un-
paid as of the date the payment is due, and fourth to the
outstanding principal.
CAUTION
!
Example. In August 2022, you took out a $10,000 stu-
dent loan to pay the tuition for your senior year of college.
The lender charged a 3% loan origination fee ($300) that
was withheld from the funds you received. The interest
(5% simple) on this loan accrued while you completed
your senior year and for 6 months after graduating. At the
end of that period, the lender determined the amount to be
repaid by capitalizing all accrued but unpaid interest ($625
interest accrued from August 2022 through October 2023)
and adding it to the outstanding principal balance of the
loan. The loan is payable over 60 months, with a payment
of $200.51 due on the first of each month, beginning No-
vember 2023.
You didn't receive a Form 1098-E for 2023 from the
lender because the amount of interest you paid didn't re-
quire the lender to issue an information return. However,
you did receive an account statement from the lender that
showed the following 2023 payments on your outstanding
loan of $10,625 ($10,000 principal + $625 accrued but un-
paid interest).
Payment Date Payment Stated Interest Principal
November 2023 $200.51 $44.27 $156.24
December 2023 $200.51 $43.62 $156.89
Totals $401.02 $87.89 $313.13
To determine the amount of interest that could be de-
ducted on the loan for 2023, you start with the total
amount of stated interest you paid, $87.89. Next, allocate
the loan origination fee over the term of the loan ($300 ÷
60 months = $5 per month). A total of $10 ($5 of each of
the two principal payments) should be treated as interest
for tax purposes. You then apply the unpaid capitalized in-
terest ($625) to the two principal payments in the order in
which they were made, and determine that the remaining
amount of principal of both payments is treated as interest
for tax purposes. Assuming that you qualify to claim the
student loan interest deduction, you can deduct $401.02
($87.89 + $10 + $303.13).
For 2024, you will continue to allocate $5 of the loan
origination fee to the principal portion of each monthly
payment you make and treat that amount as interest for
tax purposes. You will also apply the remaining amount of
capitalized interest ($625 − $303.13 = $321.87) to the
principal payments in the order in which they are made un-
til the balance is zero, and treat those amounts as interest
for tax purposes.
Don't Include as Interest
You can't claim a student loan interest deduction for any of
the following items.
•
Interest you paid on a loan if, under the terms of the
loan, you aren't legally obligated to make interest pay-
ments.
•
Loan origination fees that are payments for property or
services provided by the lender, such as commitment
fees or processing costs.
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•
Interest you paid on a loan to the extent payments
were made through your participation in the National
Health Service Corps Loan Repayment Program (the
NHSC Loan Repayment Program) or certain other
loan repayment assistance programs. For more infor-
mation, see Student Loan Repayment Assistance in
chapter 5.
When Must Interest Be Paid?
You can deduct all interest you paid during the year on
your student loan, including voluntary payments, until the
loan is paid off.
Can You Claim the Deduction?
Generally, you can claim the deduction if all of the follow-
ing requirements are met.
•
Your filing status is any filing status except married fil-
ing separately.
•
No one else is claiming you as a dependent on their
tax return.
•
You are legally obligated to pay interest on a qualified
student loan.
•
You paid interest on a qualified student loan.
Claiming you as a dependent. Another taxpayer is
claiming you as a dependent if they list your name and
other required information on page 1 of their Form 1040,
1040-SR, or 1040-NR.
Example 1. During 2023, you paid $600 interest on
your qualified student loan. Only you are legally obligated
to make the payments. No one claimed you as a depend-
ent for 2023. Assuming all other requirements are met,
you can deduct the $600 of interest you paid on your 2023
Form 1040 or 1040-SR.
Example 2. During 2023, you paid $1,100 interest on
your qualified student loan. Only you are legally obligated
to make the payments. Your parents claimed you as a de-
pendent on their 2023 tax return. In this case, neither you
nor your parents may deduct the student loan interest you
paid in 2023.
Interest paid by others. If you are the person legally ob-
ligated to make interest payments and someone else
makes a payment of interest on your behalf, you are trea-
ted as receiving the payments from the other person and,
in turn, paying the interest.
Example 1. You obtained a qualified student loan to
attend college. After graduating from college, you worked
as an intern for a nonprofit organization. As part of the in-
ternship program, the nonprofit organization made an in-
terest payment on your behalf. This payment was treated
as additional compensation and reported in box 1 of your
Form W-2. Assuming all other qualifications are met, you
can deduct this payment of interest on your tax return.
Example 2. You obtained a qualified student loan to
attend college. After graduating from college, the first
monthly payment on the loan was due in December. As a
gift, your mother made this payment. No one is claiming
you as a dependent on their tax return. Assuming all other
qualifications are met, you can deduct this payment of in-
terest on your tax return.
No Double Benefit Allowed
You can't deduct as interest on a student loan any amount
that is an allowable deduction under any other provision of
the tax law (for example, home mortgage interest).
You also can't deduct as interest on a student loan any
amount paid from a distribution of earnings made from a
QTP after 2018 to the extent the earnings are treated as
tax free because they were used to pay student loan inter-
est. For more information, see chapter 7.
For payments made after March 27, 2020, and before
January 1, 2026, do not deduct as interest on a student
loan any interest paid by your employer under an educa-
tional assistance program. See chapter 10.
Figuring the Deduction
Your student loan interest deduction is generally the
smaller of:
•
$2,500, or
•
The interest you paid during the tax year.
However, the amount determined above may be phased
out (gradually reduced) or eliminated based on your filing
status and MAGI as explained below. You can use Work-
sheet 4-1 (at the end of this chapter) to figure both your
MAGI and your deduction.
Form 1098-E. To help you figure your student loan inter-
est deduction, you should receive Form 1098-E. Gener-
ally, an institution (such as a bank or governmental
agency) that received interest payments of $600 or more
during 2023 on one or more qualified student loans must
send Form 1098-E (or an acceptable substitute) to each
borrower by January 31, 2024.
For qualified student loans taken out before September
1, 2004, the institution is required to include on Form
1098-E only payments of stated interest. Other interest
payments, such as certain loan origination fees and capi-
talized interest, may not appear on the form you receive.
However, if you pay qualifying interest that isn't included
on Form 1098-E, you can also deduct those amounts. See
Allocating Payments Between Interest and Principal, ear-
lier.
The lender may ask for a completed Form W-9S or sim-
ilar statement to obtain the borrower's name, address, and
taxpayer identification number. The form may also be
used by the borrower to certify that the student loan was
incurred solely to pay for qualified education expenses.
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Effect of the Amount of Your Income
on the Amount of Your Deduction
The amount of your student loan interest deduction is
phased out (gradually reduced) if your MAGI is between
$75,000 and $90,000 ($155,000 and $185,000 if you file a
joint return). You can't claim a student loan interest deduc-
tion if your MAGI is $90,000 or more ($185,000 or more if
you file a joint return).
Modified adjusted gross income (MAGI). For most
taxpayers, MAGI is AGI as figured on their federal income
tax return before subtracting any deduction for student
loan interest. However, as discussed below, there may be
other modifications.
Table 4-2 shows how the amount of your MAGI can af-
fect your student loan interest deduction.
Effect of MAGI on Student Loan
Interest Deduction
IF your filing
status is... AND your MAGI is...
THEN your student
loan interest
deduction is...
single,
head of
household, or
qualifying
surviving
spouse
not more than $75,000 not affected by the
phaseout.
more than $75,000
but less than
$90,000
reduced because of the
phaseout.
$90,000 or more eliminated by the
phaseout.
married filing
joint return
not more than $155,000 not affected by the
phaseout.
more than $155,000
but less than $185,000
reduced because of the
phaseout.
$185,000 or more eliminated by the
phaseout.
MAGI when using Form 1040 or 1040-SR. If you file
Form 1040 or 1040-SR, your MAGI is the AGI on line 11 of
that form figured without taking into account any amount
on Schedule 1 (Form 1040), line 21 (student loan interest
deduction), and modified by adding back any:
1. Foreign earned income exclusion,
2. Foreign housing exclusion,
3. Foreign housing deduction,
4. Exclusion of income by bona fide residents of Ameri-
can Samoa, and
5. Exclusion of income by bona fide residents of Puerto
Rico.
Table 4-2.
MAGI when using Form 1040-NR. If you file Form
1040-NR, your MAGI is the AGI on line 11 of that form fig-
ured without taking into account any amount on Schedule
1 (Form 1040), line 21 (student loan interest deduction).
Phaseout. If your MAGI is within the range of incomes
where the credit must be reduced, you must figure your re-
duced deduction. To figure the phaseout, multiply your in-
terest deduction (before the phaseout, but not more than
$2,500) by a fraction. The numerator (top part) is your
MAGI minus $75,000 ($155,000 in the case of a joint re-
turn). The denominator (bottom part) is $15,000 ($30,000
in the case of a joint return). Subtract the result from your
deduction (before the phaseout) to give you the amount
you can deduct.
Example 1. During 2023, you paid $800 interest on a
qualified student loan. Your 2023 MAGI is $170,000 and
you are filing a joint return. You must reduce your deduc-
tion by $400, figured as follows.
$800 ×
$170,000 − $155,000
$30,000
= $400
Your reduced student loan interest deduction is $400
($800 − $400).
Example 2. The facts are the same as in Example 1,
except that you paid $2,750 interest. Your maximum de-
duction for 2023 is $2,500. You must reduce your maxi-
mum deduction by $1,250, figured as follows.
$2,500 ×
$170,000 − $155,000
$30,000
= $1,250
In this example, your reduced student loan interest deduc-
tion is $1,250 ($2,500 − $1,250).
Which Worksheet To Use
Generally, you figure the deduction using the Student
Loan Interest Deduction Worksheet in the Schedule 1
(Form 1040) instructions included in the Instructions for
Form 1040. However, if you are filing Form 2555, Foreign
Earned Income; Form 4563, Exclusion of Income for Bona
Fide Residents of American Samoa; or you are excluding
income from sources within Puerto Rico, you must com-
plete Worksheet 4-1.
Claiming the Deduction
The student loan interest deduction is an adjustment to in-
come. To claim the deduction, enter the allowable amount
on Schedule 1 (Form 1040), line 21.
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Student Loan Interest Deduction Worksheet
Keep for Your Records
Use this worksheet instead of the worksheet in the Schedule 1 (Form 1040) instructions if you are
filing Form 2555 or 4563, or you are excluding income from sources within Puerto Rico. Before
using this worksheet, you must complete Form 1040 or 1040-SR, line 9, and Schedule 1 (Form
1040), lines 11 through 20, and 23 and 25.
 1. Enter the total interest you paid in 2023 on qualified student loans. Don't enter more than $2,500 ...........
1.
 2. Enter the amount from Form 1040 or 1040-SR, line 9 .......................
2.
 3. Enter the total of the amounts from Schedule 1 (Form 1040), lines 11 through 20,
and 23 and 25 ................................................... 3.
 4. Subtract line 3 from line 2 ...........................................
4.
 5. Enter any foreign earned income exclusion and/or housing
exclusion (Schedule 1 (Form 1040), line 8d) ............................. 5.
6. Enter any foreign housing deduction (Schedule 1 (Form 1040), line 24j) .........
6.
7. Enter the amount of income from Puerto Rico you are excluding ...............
7.
8. Enter the amount of income from American Samoa you are
excluding (Form 4563, line 15) ....................................... 8.
9. Add lines 4 through 8. This is your modified adjusted gross income ...............................
9.
10. Enter the amount shown below for your filing status .............................................
10.
• Single, head of household, or qualifying surviving spouse—$75,000
• Married filing jointly—$155,000
11. Is the amount on line 9 more than the amount on line 10?
No. Skip lines 11 and 12, enter -0- on line 13, and go to line 14.
Yes. Subtract line 10 from line 9 ........................................................
11.
12. Divide line 11 by $15,000 ($30,000 if married filing jointly). Enter the result as a decimal
(rounded to at least three places). If the result is 1.000 or more, enter 1.000 ........................... 12.
.
13. Multiply line 1 by line 12 .................................................................
13.
14. Student loan interest deduction. Subtract line 13 from line 1. Enter the result here
and on Schedule 1 (Form 1040), line 21. Don't include this amount in figuring any other
deduction on your return (such as on Schedule A, C, E, etc.) ...................................... 14.
Worksheet 4-1.
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5.
Student Loan
Cancellations and
Repayment Assistance
Reminder
Student loan forgiveness. The American Rescue Plan
Act of 2021 modified the treatment of student loan forgive-
ness for discharges in 2021 through 2025.
Introduction
Generally, if you are responsible for making loan pay-
ments, and the loan is canceled or repaid by someone
else, you must include the amount that was canceled or
paid on your behalf in your gross income for tax purposes.
However, in certain circumstances, you may be able to ex-
clude this amount from gross income if the loan was one
of the following.
•
A loan for postsecondary educational expenses.
•
A private education loan.
•
A loan from an educational organization described in
section 170(b)(1)(A)(ii).
•
A loan from an organization exempt from tax under
section 501(a) to refinance a student loan.
Loan for Postsecondary
Educational Expenses
This is any loan provided expressly for postsecondary ed-
ucation, regardless of whether provided through the edu-
cational institution or directly to the borrower, if such loan
was made, insured, or guaranteed by one of the following.
•
The United States, or an instrumentality or agency
thereof.
•
A state or territory of the United States; or the District
of Columbia; or any political subdivision thereof.
•
An eligible educational institution.
Eligible educational institution. An eligible educational
institution is any college, university, vocational school, or
other postsecondary educational institution eligible to par-
ticipate in a student aid program administered by the U.S.
Department of Education. Virtually all accredited public,
nonprofit, and proprietary (privately owned profit-making)
postsecondary institutions meet this definition.
An eligible educational institution also includes certain
educational institutions located outside the United States
that are eligible to participate in a student aid program ad-
ministered by the U.S. Department of Education.
The educational institution should be able to tell
you if it is an eligible educational institution.
Private Education Loan
A private education loan is a loan provided by a private
educational lender that:
•
Is not made, insured, or guaranteed under Title IV of
the Higher Education Act of 1965; and
•
Is issued expressly for postsecondary educational ex-
penses to a borrower, regardless of whether the loan
is provided through the educational institution that the
student attends or directly to the borrower from the pri-
vate educational lender. A private education loan does
not include an extension of credit under an open-end
consumer credit plan, a reverse mortgage transaction,
a residential mortgage transaction, or any other loan
that is secured by real property or a dwelling.
Private educational lender. A private educational
lender is one of the following.
•
A financial institution that solicits, makes, or extends
private education loans.
•
A federal credit union that solicits, makes, or extends
private education loans.
•
Any other person engaged in the business of solicit-
ing, making, or extending private education loans.
The cancellation of your loan won't qualify for
tax-free treatment if it is canceled because of
services you performed for the private educational
lender that made the loan or other organization that provi-
ded the funds.
Loan From an Educational
Organization Described in
Section 170(b)(1)(A)(ii)
This is any loan made by the organization if the loan is
made:
•
As part of an agreement with an entity described ear-
lier under which the funds to make the loan were pro-
vided to the educational organization, or
•
Under a program of the educational organization that
is designed to encourage its students to serve in oc-
cupations with unmet needs or in areas with unmet
needs where the services provided by the students (or
former students) are for or under the direction of a
TIP
CAUTION
!
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Assistance
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governmental unit or a tax-exempt section 501(c)(3)
organization.
Educational organization described in section 170(b)
(1)(A)(ii). This is an educational institution that maintains
a regular faculty and curriculum and normally has a regu-
larly enrolled body of students in attendance at the place
where it carries on its educational activities.
Section 501(c)(3) organization. This is any corpora-
tion, community chest, fund, or foundation organized and
operated exclusively for one or more of the following pur-
poses.
•
Charitable.
•
Religious.
•
Educational.
•
Scientific.
•
Literary.
•
Testing for public safety.
•
Fostering national or international amateur sports
competition (but only if none of its activities involve
providing athletic facilities or equipment).
•
The prevention of cruelty to children or animals.
The cancellation of your loan won't qualify for
tax-free treatment if it is canceled because of
services you performed for the educational organ-
ization that made the loan or other organization that provi-
ded the funds.
Refinanced Loan
If you refinanced a student loan with another loan from an
educational organization or a tax-exempt organization, the
cancellation of that loan may also be treated as discussed
above. This applies if the new loan is made under a pro-
gram of the refinancing organization that is designed to
encourage students to serve in occupations with unmet
needs or in areas with unmet needs where the services
required of the students are for or under the direction of a
governmental unit or a tax-exempt section 501(c)(3) or-
ganization (defined earlier).
Student Loan Repayment
Assistance
Student loan repayments made to you are tax free if you
received them for any of the following.
•
The National Health Service Corps Loan Repayment
Program (NHSC Loan Repayment Program).
•
A state education loan repayment program eligible for
funds under the Public Health Service Act.
•
Any other state loan repayment or loan forgiveness
program that is intended to provide for the increased
CAUTION
!
availability of health services in underserved or health
professional shortage areas (as determined by such
state).
You can't deduct the interest you paid on a stu-
dent loan to the extent payments were made
through your participation in the above programs.
6.
Coverdell Education
Savings Account (ESA)
Introduction
If your modified adjusted gross income (MAGI) is less than
$110,000 ($220,000 if filing a joint return), you may be
able to establish a Coverdell ESA to finance the qualified
education expenses of a designated beneficiary. For most
taxpayers, MAGI is the adjusted gross income (AGI) as
figured on their federal income tax return.
Total contributions for the beneficiary in any year can't
be more than $2,000, no matter how many separate Cov-
erdell ESAs have been established for the beneficiary.
See Contributions, later.
This benefit applies not only to higher education
expenses, but also to elementary and secondary
education expenses.
What is the tax benefit of the Coverdell ESA? Contri-
butions to a Coverdell ESA aren't deductible, but amounts
deposited in the account grow tax free until distributed.
If, for a year, distributions from an account aren't more
than a designated beneficiary's adjusted qualified educa-
tion expenses (AQEE) at an eligible educational institu-
tion, the beneficiary won't owe tax on the distributions.
See Tax-Free Distributions, later.
Table 6-1 summarizes the main features of the Cover-
dell ESA.
CAUTION
!
TIP
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Coverdell ESA at a Glance
Don't rely on this table alone. It provides
only general highlights. See the text for
definitions of terms and for more complete
explanations.
Table 6-1.
Question Answer
What is a Coverdell
ESA?
A savings account that is set up to pay
the qualified education expenses of a
designated beneficiary.
Where can it be
established?
It can be opened in the United States at
any bank or other IRS-approved entity
that offers Coverdell ESAs.
Who can have a
Coverdell ESA?
Any beneficiary who is under age 18 or
is a special needs beneficiary.
Who can contribute to
a Coverdell ESA?
Generally, any individual (including the
beneficiary) whose MAGI for the year is
less than $110,000 ($220,000 in the
case of a joint return).
Are distributions tax
free?
Yes, if the distributions aren't more than
the beneficiary's AQEE for the year.
What Is a Coverdell ESA?
A Coverdell ESA is a trust or custodial account created or
organized in the United States only for the purpose of pay-
ing the qualified education expenses of the Designated
beneficiary (defined later) of the account.
When the account is established, the designated bene-
ficiary must be under age 18 or a special needs benefi-
ciary.
To be treated as a Coverdell ESA, the account must be
designated as a Coverdell ESA when it is created.
The document creating and governing the account
must be in writing and must satisfy the following require-
ments.
1. The trustee or custodian must be a bank or an entity
approved by the IRS.
2. The document must provide that the trustee or custo-
dian can only accept a contribution that meets all of
the following conditions.
a. The contribution is in cash.
b. The contribution is made before the beneficiary
reaches age 18, unless the beneficiary is a special
needs beneficiary.
c. The contribution wouldn't result in total contribu-
tions for the year (not including rollover contribu-
tions) being more than $2,000.
3. Money in the account can't be invested in life insur-
ance contracts.
4. Money in the account can't be combined with other
property except in a common trust fund or common
investment fund.
5. The balance in the account must generally be distrib-
uted within 30 days after the earlier of the following
events.
a. The beneficiary reaches age 30, unless the bene-
ficiary is a special needs beneficiary.
b. The beneficiary's death.
Qualified Education Expenses
Generally, these are expenses required for the enrollment
or attendance of the designated beneficiary at an eligible
educational institution. The expenses can be either quali-
fied higher education expenses or qualified elementary
and secondary education expenses.
Designated beneficiary. This is the individual named in
the document creating the trust or custodial account to re-
ceive the benefit of the funds in the account.
Contributions to a qualified tuition program (QTP). A
contribution to a QTP is a qualified education expense if
the contribution is on behalf of the designated beneficiary
of the Coverdell ESA. In the case of a change in benefi-
ciary, this is a qualified expense only if the new beneficiary
is a family member of that designated beneficiary. See
chapter 7.
Eligible Educational Institution
An eligible educational institution can be either an eligible
postsecondary school or an eligible elementary or secon-
dary school.
Eligible postsecondary school. An eligible postsecon-
dary school is generally any accredited public, nonprofit,
or proprietary (privately owned profit-making) college, uni-
versity, vocational school, or other postsecondary educa-
tional institution. Also, the institution must be eligible to
participate in a student aid program administered by the
U.S. Department of Education. Virtually all accredited
postsecondary institutions meet this definition. The edu-
cational institution should be able to tell you if it is an eligi-
ble educational institution.
An eligible educational institution also includes certain
educational institutions located outside the United States
that are eligible to participate in a student aid program ad-
ministered by the U.S. Department of Education.
Eligible elementary or secondary school. An eligible
elementary or secondary school is any public, private, or
religious school that provides elementary or secondary
education (kindergarten through grade 12), as determined
under state law.
Qualified Higher Education Expenses
These are expenses related to enrollment or attendance
at an eligible postsecondary school. As shown in the fol-
lowing list, to be qualified, some of the expenses must be
required by the school and some must be incurred by stu-
dents who are enrolled at least half-time.
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1. The following expenses must be required for enroll-
ment or attendance of a designated beneficiary at an
eligible postsecondary school.
a. Tuition and fees.
b. Books, supplies, and equipment.
2. Expenses for special needs services needed by a
special needs beneficiary must be incurred in connec-
tion with enrollment or attendance at an eligible post-
secondary school.
3. Expenses for room and board must be incurred by
students who are enrolled at least half-time (defined
below).
The expense for room and board qualifies only to
the extent that it isn't more than the greater of the fol-
lowing two amounts.
a. The allowance for room and board, as determined
by the school, that was included in the cost of at-
tendance (for federal financial aid purposes) for a
particular academic period and living arrangement
of the student.
b. The actual amount charged if the student is resid-
ing in housing owned or operated by the school.
You may need to contact the eligible educational insti-
tution for qualified room and board costs.
4. The purchase of computer or peripheral equipment,
computer software, or Internet access and related
services if it is to be used primarily by the beneficiary
during any of the years the beneficiary is enrolled at
an eligible postsecondary school. (This doesn’t in-
clude expenses for computer software for sports,
games, or hobbies unless the software is predomi-
nantly educational in nature.)
Half-time student. A student is enrolled “at least
half-time” if he or she is enrolled for at least half the
full-time academic workload for the course of study the
student is pursuing, as determined under the standards of
the school where the student is enrolled.
Qualified Elementary and Secondary
Education Expenses
These are expenses related to enrollment or attendance
at an eligible elementary or secondary school. As shown
in the following list, to be qualified, some of the expenses
must be required or provided by the school. There are
special rules for computer-related expenses.
1. The following expenses must be incurred by a desig-
nated beneficiary in connection with enrollment or at-
tendance at an eligible elementary or secondary
school.
a. Tuition and fees.
b. Books, supplies, and equipment.
c. Academic tutoring.
d. Special needs services for a special needs benefi-
ciary.
2. The following expenses must be required or provided
by an eligible elementary or secondary school in con-
nection with attendance or enrollment at the school.
a. Room and board.
b. Uniforms.
c. Transportation.
d. Supplementary items and services (including ex-
tended day programs).
3. The purchase of computer or peripheral equipment,
computer software, fiber optic cables related to com-
puter use, or Internet access and related services is a
qualified elementary and secondary education ex-
pense if it is to be used by the beneficiary and the
beneficiary's family during any of the years the benefi-
ciary is in elementary or secondary school. (This
doesn't include expenses for computer software de-
signed for sports, games, or hobbies unless the soft-
ware is predominantly educational in nature.)
Contributions
Any individual (including the designated beneficiary) can
contribute to a Coverdell ESA if the individual's MAGI (de-
fined later under Contribution Limits) for the year is less
than $110,000. For individuals filing joint returns, that
amount is $220,000.
Organizations, such as corporations and trusts, can
also contribute to Coverdell ESAs. There is no require-
ment that an organization's income be below a certain
level.
Contributions must meet all of the following require-
ments.
1. They must be in cash.
2. They can't be made after the beneficiary reaches age
18, unless the beneficiary is a special needs benefi-
ciary.
3. They must be made by the due date of the contribu-
tor's tax return (not including extensions).
Contributions can be made to one or several Coverdell
ESAs for the same designated beneficiary provided that
the total contributions aren't more than the contribution
limits (defined later) for a year.
Contributions can be made, without penalty, to both a
Coverdell ESA and a QTP in the same year for the same
beneficiary.
Table 6-2 summarizes many of the features of contribu-
ting to a Coverdell ESA.
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Coverdell ESA Contributions at a
Glance
Don't rely on this table alone. It provides
only general highlights. See the text for
more complete explanations.
Question Answer
Are contributions
deductible?
No.
What is the annual
contribution limit per
designated beneficiary?
$2,000 for each designated
beneficiary.
What if more than one
Coverdell ESA has been
opened for the same
designated beneficiary?
The annual contribution limit
is $2,000 for each
beneficiary, no matter how
many Coverdell ESAs are
set up for that beneficiary.
What if more than one
individual makes
contributions for the same
designated beneficiary?
The annual contribution limit
is $2,000 per beneficiary, no
matter how many individuals
contribute.
Can contributions other
than cash be made to a
Coverdell ESA?
No.
When must contributions
stop?
No contributions can be
made to a beneficiary's
Coverdell ESA after he or
she reaches age 18, unless
the beneficiary is a special
needs beneficiary.
When contributions are considered made. Contribu-
tions made to a Coverdell ESA for the preceding tax year
are considered to have been made on the last day of the
preceding year. They must be made by the due date (not
including extensions) for filing your return for the preced-
ing year.
For example, if you make a contribution to a Coverdell
ESA in February 2024, and you designate it as a contribu-
tion for 2023, you are considered to have made that contri-
bution on December 31, 2023.
Contribution Limits
There are two yearly limits.
1. One on the total amount that can be contributed for
each designated beneficiary in any year.
2. One on the amount that any individual can contribute
for any one designated beneficiary for a year.
Limit for each designated beneficiary. For 2023, the
total of all contributions to all Coverdell ESAs set up for the
benefit of any one designated beneficiary can't be more
than $2,000. This includes contributions (other than roll-
overs) to all the beneficiary's Coverdell ESAs from all
sources. Rollovers are discussed under Rollovers and
Other Transfers, later.
Table 6-2.
Example. When a beneficiary was born in 2022, three
separate Coverdell ESAs were set up, one by the parents,
one by a grandparent, and one by an aunt. In 2023, the to-
tal of all contributions to the three Coverdell ESAs can't be
more than $2,000. For example, if the grandparent con-
tributed $2,000 to one of the Coverdell ESAs, no one else
could contribute to any of the three accounts. Or, if the pa-
rents contributed $1,000 and the aunt $600, the grandpar-
ent or someone else could contribute no more than $400.
These contributions could be put into any of the benefi-
ciary's Coverdell ESA accounts.
Limit for each contributor. Generally, you can contrib-
ute up to $2,000 for each designated beneficiary for 2023.
This is the most you can contribute for the benefit of any
one beneficiary for the year, regardless of the number of
Coverdell ESAs set up for the beneficiary.
Example. The facts are the same as in the previous
example except that the beneficiary's older sibling also
has a Coverdell ESA. If the grandparent contributed
$2,000 to the beneficiary's Coverdell ESA in 2023, the
grandparent could also contribute $2,000 to the sibling's
Coverdell ESA.
Reduced limit. Your contribution limit may be re-
duced. If your MAGI (defined later) is between $95,000
and $110,000 (between $190,000 and $220,000 if filing a
joint return), the $2,000 limit for each designated benefi-
ciary is gradually reduced (see Figuring the limit, later). If
your MAGI is $110,000 or more ($220,000 or more if filing
a joint return), you can't contribute to anyone's Coverdell
ESA.
Modified adjusted gross income (MAGI). For most
taxpayers, MAGI is adjusted gross income (AGI) as fig-
ured on their federal income tax return.
MAGI when using Form 1040 or 1040-SR. If you file
Form 1040 or 1040-SR, your MAGI is the AGI on line 11 of
that form, modified by adding back any:
1. Foreign earned income exclusion,
2. Foreign housing exclusion,
3. Foreign housing deduction,
4. Exclusion of income by bona fide residents of Ameri-
can Samoa, and
5. Exclusion of income by bona fide residents of Puerto
Rico.
If you have any of these adjustments, you can use
Worksheet 6-1 to figure your MAGI for Form 1040 or
1040-SR.
MAGI when using Form 1040-NR. If you file Form
1040-NR, your MAGI is the AGI on line 11 of that form.
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Worksheet 6-1. MAGI for a Coverdell ESA
1. Enter your AGI (Form 1040 or 1040-SR,
line 11) ...........................
1.
2. Enter your foreign earned
income exclusion and/or
housing exclusion (Form
2555, line 45) ..........
2.
3. Enter your foreign housing
deduction (Form 2555,
line 50) ...............
3.
4. Enter the amount of
income from Puerto Rico
you’re excluding ........
4.
5. Enter the amount of
income from American
Samoa you’re excluding
(Form 4563,
line 15) ...............
5.
6. Add lines 2, 3, 4, and 5 ..............
6.
7. Add lines 1 and 6. This is
your MAGI .........................
7.
Figuring the limit. To figure the limit on the amount you
can contribute for each designated beneficiary, multiply
$2,000 by a fraction. The numerator (top part) is your
MAGI minus $95,000 ($190,000 if filing a joint return). The
denominator (bottom part) is $15,000 ($30,000 if filing a
joint return). Subtract the result from $2,000. This is the
amount you can contribute for each beneficiary. You can
use Worksheet 6-2 to figure the limit on contributions.
Coverdell ESA Contribution
Limit
1. Maximum contribution ...............
1.
$ 2,000
2. Enter your MAGI for purposes of figuring
the contribution limit to a Coverdell ESA
(see definition or Worksheet 6-1) ...... 2.
3. Enter $190,000 if married filing jointly;
$95,000 for all other filers ............ 3.
4. Subtract line 3 from line 2. If zero or less,
enter -0- on line 4, skip lines 5 through 7,
and enter $2,000 on line 8 ............ 4.
5. Enter $30,000 if married filing jointly;
$15,000 for all other filers ............ 5.
Note. If the amount on line 4 is greater
than or equal to the amount on line 5,
stop here. You aren't allowed to
contribute to a Coverdell ESA for 2023.
6. Divide line 4 by line 5 and enter the result
as a decimal (rounded to at least 3
places) ........................... 6.
  .
7. Multiply line 1 by line 6 ...............
7.
8. Subtract line 7 from line 1 ............ 8.
Note. The total Coverdell ESA contributions from all sources for the
designated beneficiary during the tax year may not exceed $2,000.
Example. A taxpayer filing as single had MAGI of
$96,500 for 2023. The taxpayer can contribute up to
$1,800 in 2023 for each beneficiary, as shown in the illus-
trated Worksheet 6-2.
Worksheet 6-2.
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Coverdell ESA Contribution
Limit—Illustrated
1. Maximum contribution ...............
1.
$ 2,000
2. Enter your MAGI for purposes of figuring
the contribution limit to a Coverdell ESA
(see definition or Worksheet 6-1) ...... 2.
96,500
3. Enter $190,000 if married filing jointly;
$95,000 for all other filers ............ 3.
95,000
4. Subtract line 3 from line 2. If zero or less,
enter -0- on line 4, skip lines 5 through 7,
and enter $2,000 on line 8 ............ 4.
1,500
5. Enter $30,000 if married filing jointly;
$15,000 for all other filers ............ 5.
15,000
Note. If the amount on line 4 is greater
than or equal to the amount on line 5,
stop here. You aren't allowed to
contribute to a Coverdell ESA for 2023.
6. Divide line 4 by line 5 and enter the result
as a decimal (rounded to at least 3
places) ........................... 6.
  .100
7. Multiply line 1 by line 6 ...............
7.
200
8. Subtract line 7 from line 1 ............
8.
1,800
Note. The total Coverdell ESA contributions from all sources for the
designated beneficiary during the tax year may not exceed $2,000.
Additional Tax on Excess
Contributions
The beneficiary may owe a 6% excise tax each year on
excess contributions that are in a Coverdell ESA at the
end of the year. Excess contributions are the total of the
following two amounts.
1. Contributions to any designated beneficiary's Cover-
dell ESA for the year that are more than $2,000 (or, if
less, the total of each contributor's limit for the year, as
discussed earlier).
2. Excess contributions for the preceding year, reduced
by the total of the following two amounts.
a. Distributions (other than those rolled over, as dis-
cussed later) during the year.
b. The contribution limit for the current year minus
the amount contributed for the current year.
Exceptions. The excise tax doesn't apply if excess con-
tributions made during 2023 (and any earnings on them)
are distributed before the first day of the sixth month of the
following tax year (June 1, 2024, for a calendar year tax-
payer).
However, you must include the distributed earnings in
gross income for the year in which the excess contribution
was made. You should receive Form 1099-Q, Payments
From Qualified Education Programs, from each institution
from which excess contributions were distributed. Box 2 of
that form will show the amount of earnings on your excess
Worksheet 6-2.
contributions. Code “2” or “3” entered in the blank box be-
low boxes 5 and 6 indicates the year in which the earnings
are taxable. See Instructions for Recipient of your Form
1099-Q, on the back of Copy B. Enter the amount of earn-
ings on Schedule 1 (Form 1040), line 8z, for the applicable
tax year. For more information, see Taxable Distributions,
later.
The excise tax doesn't apply to any rollover contribu-
tion.
Note. Contributions made in one year for the preced-
ing tax year are considered to have been made on the last
day of the preceding year.
Example. In 2022, your parents and grandparents
contributed a total of $2,300 to your Coverdell ESA—an
excess contribution of $300. Because you didn't withdraw
the excess before June 1, 2023, you had to pay an addi-
tional tax of $18 (6% × $300) when you filed your 2022 tax
return.
In 2023, excess contributions of $500 were made to
your account; however, you withdrew $250 from that ac-
count to use for qualified education expenses. Using the
steps shown earlier under Additional Tax on Excess Con-
tributions, you figure the excess contribution in your ac-
count at the end of 2023 as follows.
(1) $500 excess contributions
made in 2023
+ (2) $300 excess contributions in
ESA at end of 2022
− (2a) $250 distribution during 2023
$550 excess at end of 2023
× 6% = $33
If you limit 2024 contributions to $1,450 ($2,000 maximum
allowed − $550 excess contributions from 2023), you
won't owe any additional tax in 2024 for excess contribu-
tions.
Figuring and reporting the additional tax. You figure
this excise tax on Form 5329, Part V. Report the additional
tax on Schedule 2 (Form 1040), line 8.
Rollovers and Other Transfers
Assets can be rolled over from one Coverdell ESA to an-
other or the designated beneficiary can be changed. The
beneficiary's interest can be transferred to a spouse or for-
mer spouse because of divorce.
Rollovers
Any amount distributed from a Coverdell ESA isn't taxable
if it is rolled over to another Coverdell ESA for the benefit
of the same beneficiary or a member of the beneficiary's
family (including the beneficiary's spouse) who is under
age 30. This age limitation doesn't apply if the new benefi-
ciary is a special needs beneficiary.
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An amount is rolled over if it is paid to another Coverdell
ESA within 60 days after the date of the distribution.
Don't report qualifying rollovers (those that meet the
above criteria) anywhere on Form 1040, 1040-SR, or
1040-NR. These aren't taxable distributions.
Members of the beneficiary's family. For these purpo-
ses, the beneficiary's family includes the beneficiary's
spouse and the following other relatives of the beneficiary.
1. Son, daughter, stepchild, foster child, adopted child,
or a descendant of any of them.
2. Brother, sister, stepbrother, or stepsister.
3. Father or mother or ancestor of either.
4. Stepfather or stepmother.
5. Son or daughter of a brother or sister.
6. Brother or sister of father or mother.
7. Son-in-law, daughter-in-law, father-in-law,
mother-in-law, brother-in-law, or sister-in-law.
8. The spouse of any individual listed above.
9. First cousin.
Example. When you graduated from college in Janu-
ary last year, you had $5,000 left in your Coverdell ESA.
You wanted to give this money to your younger sibling,
who was still in high school. In order to avoid paying tax on
the distribution of the amount remaining in your account,
you contributed the same amount to your sibling’s Cover-
dell ESA within 60 days of the distribution.
You can make only one rollover from a Coverdell
ESA to another Coverdell ESA in any 12-month
period regardless of the number of Coverdell
ESAs you own. However, you can make unlimited trans-
fers from one Coverdell ESA trustee directly to another
Coverdell ESA trustee because such transfers aren't con-
sidered to be distributions or rollovers. The limit of one roll-
over during any 12-month period doesn't apply to the roll-
over of a military death gratuity or Servicemembers' Group
Life Insurance (SGLI) payment.
Military death gratuity. If you received a military death
gratuity or a payment from SGLI, you may roll over all or
part of the amount received to one or more Coverdell
ESAs for the benefit of members of the beneficiary's family
(see Members of the beneficiary's family, earlier). Such
payments are made to an eligible survivor upon the death
of a member of the U.S. Armed Forces. The contribution
to a Coverdell ESA from survivor benefits received can't
be made later than 1 year after the date on which you re-
ceive the gratuity or SGLI payment.
This rollover contribution isn't subject to (but is in addi-
tion to) the contribution limits discussed earlier under Con-
tribution Limits. The amount you roll over can't exceed the
total survivor benefits you received, reduced by contribu-
tions from these benefits to a Roth IRA or other Coverdell
ESAs.
CAUTION
!
The amount contributed from the survivor benefits is
treated as part of your basis (cost) in the Coverdell ESA,
and won't be taxed when distributed. See Distributions,
later.
The limit of one rollover during any 12-month pe-
riod doesn't apply to the rollover of a military
death gratuity or SGLI payment.
Changing the Designated Beneficiary
The designated beneficiary can be changed. See Mem-
bers of the beneficiary's family, earlier. There aren't any
tax consequences if, at the time of the change, the new
beneficiary is under age 30 or is a special needs benefi-
ciary.
Example. Assume the same situation as in the last ex-
ample (see Rollovers, earlier). Instead of closing your
Coverdell ESA and paying the distribution into your sib-
ling’s Coverdell ESA, you could have instructed the trustee
of your account to simply change the name of the benefi-
ciary on your account to that of your sibling.
Transfer Because of Divorce
If a spouse or former spouse receives a Coverdell ESA
under a divorce or separation instrument, it isn't a taxable
transfer. After the transfer, the spouse or former spouse
treats the Coverdell ESA as their own.
Example. In their divorce settlement, Taxpayer A re-
ceived Taxpayer B’s Coverdell ESA. In this process, the
account was transferred into Taxpayer A’s name. Taxpayer
A now treats the funds in this Coverdell ESA as if they
were the original owner.
Distributions
The designated beneficiary of a Coverdell ESA can take a
distribution at any time. Whether the distributions are tax
free depends, in part, on whether the distributions are
equal to or less than the amount of Adjusted qualified edu-
cation expenses (AQEE) (defined later) the beneficiary
has in the same tax year.
See Table 6-3 for highlights.
CAUTION
!
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Coverdell ESA Distributions at a
Glance
Don't rely on this table alone. It provides
only general highlights. See the text for
definitions of terms and for more complete
explanations.
Table 6-3.
Question Answer
Is a distribution from a
Coverdell ESA to pay for a
designated beneficiary's
qualified education
expenses tax free?
Generally, yes, to the extent
the amount of the distribution
isn't more than the designated
beneficiary's AQEE.
After the designated
beneficiary completes the
educational requirements at
an eligible educational
institution, can amounts
remaining in the Coverdell
ESA be distributed?
Yes. Amounts must be
distributed when the
designated beneficiary
reaches age 30, unless the
beneficiary is a special needs
beneficiary. Also, certain
transfers to members of the
beneficiary's family are
permitted.
Does the designated
beneficiary need to be
enrolled for a minimum
number of courses to claim
tax-free distribution?
No.
Adjusted qualified education expenses (AQEE). To
determine if total distributions for the year are more than
the amount of qualified education expenses, reduce total
qualified education expenses by any tax-free educational
assistance. Tax-free educational assistance includes:
•
The tax-free part of scholarships and fellowship grants
(see Tax-Free Scholarships and Fellowship Grants in
chapter 1);
•
Veterans' educational assistance (see Veterans' Bene-
fits in chapter 1);
•
The tax-free part of Pell grants (see Pell Grants and
Other Title IV Need-Based Education Grants in chap-
ter 1);
•
Employer-provided educational assistance (see chap-
ter 10); and
•
Any other nontaxable (tax-free) payments (other than
gifts or inheritances) received as educational assis-
tance.
The amount you get by subtracting tax-free educational
assistance from your total qualified education expenses is
your AQEE.
Tax-Free Distributions
Generally, distributions are tax free if they aren't more than
the beneficiary's AQEE for the year. Don't report tax-free
distributions (including qualifying rollovers) on your tax re-
turn.
Taxable Distributions
A portion of the distributions is generally taxable to the
beneficiary if the total distributions are more than the ben-
eficiary's AQEE for the year.
Excess distribution. This is the part of the total distribu-
tion that is more than the beneficiary's AQEE for the year.
Earnings and basis. You will receive a Form 1099-Q for
each of the Coverdell ESAs from which money was distrib-
uted in 2023. The amount of your gross distribution will be
shown in box 1. For 2023, instead of dividing the gross
distribution between your earnings (box 2) and your basis
(amount already taxed) (box 3), the payer or trustee may
report the fair market value (account balance) of the Cov-
erdell ESA as of December 31, 2023. This will be shown
in the blank box below boxes 5 and 6.
The amount contributed from survivor benefits (see
Military death gratuity, earlier) is treated as part of your
basis and won't be taxed when distributed.
Figuring the Taxable Portion of a
Distribution
The taxable portion is the amount of the excess distribu-
tion that represents earnings that have accumulated tax
free in the account. Figure the taxable portion for 2023 as
shown in the following steps.
1. Multiply the total amount distributed by a fraction. The
numerator (top part) is the basis (contributions not
previously distributed) at the end of 2022, plus total
contributions for 2023, and the denominator (bottom
part) is the value (balance) of the account at the end
of 2023 plus the amount distributed during 2023.
2. Subtract the amount figured in (1) from the total
amount distributed during 2023. The result is the
amount of earnings included in the distribution(s).
3. Multiply the amount of earnings figured in (2) by a
fraction. The numerator (top part) is the AQEE paid
during 2023, and the denominator (bottom part) is the
total amount distributed during 2023.
4. Subtract the amount figured in (3) from the amount
figured in (2). The result is the amount the beneficiary
must include in income.
The taxable amount must be reported on Schedule 1
(Form 1040), line 8z.
Example. You received an $850 distribution from your
Coverdell ESA, to which $1,500 had been contributed be-
fore 2023. There were no contributions in 2023. This is
your first distribution from the account, so your basis in the
account on December 31, 2022, was $1,500. The value
(balance) of your account on December 31, 2023, was
$950. You had $700 of AQEE for the year. Using the steps
in Figuring the Taxable Portion of a Distribution, earlier, fig-
ure the taxable portion of your distribution as follows.
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1. $850 (distribution) ×
$1,500 basis + $0 contributions
$950 value + $850 distribution
= $708 (basis portion of distribution)
2. $850 (distribution) − $708 (basis portion of distribution)
= $142 (earnings included in distribution)
3.
$142
(earnings)
×
  $700 AQEE  
$850 distribution
= $117 (tax-free earnings)
4. $142 (earnings) − $117 (tax-free earnings)
= $25 (taxable earnings)
You must include $25 in income as distributed earnings
not used for qualified education expenses. Report this
amount on Schedule 1 (Form 1040), line 8z, listing the
type and amount of income.
Worksheet 6-3, at the end of this chapter, can help you
figure your AQEE, how much of your distribution must be
included in income, and the remaining basis in your Cov-
erdell ESA(s).
Coordination With American Opportunity
and Lifetime Learning Credits
The American opportunity or lifetime learning credit can
be claimed in the same year the beneficiary takes a
tax-free distribution from a Coverdell ESA, as long as the
same expenses aren't used for both benefits. This means
the beneficiary must reduce qualified higher education ex-
penses (QHEE) by tax-free educational assistance, and
then further reduce them by any expenses taken into ac-
count in determining an American opportunity or lifetime
learning credit.
Example. In 2023, during your first year in college you
had $5,800 of QHEE. You paid your college expenses
from the following sources.
Partial tuition scholarship (tax free) ......... $1,500
Coverdell ESA distribution ............... 1,000
Gift from parents ...................... 2,100
Earnings from part-time job ............... 1,200
Of the $5,800 of QHEE, $4,000 was tuition and related ex-
penses that also qualified for an American opportunity
credit. Your parents claimed a $2,500 American opportu-
nity credit (based on $4,000 expenses) on their tax return.
Before you can determine the taxable portion of your
Coverdell ESA distribution, you must reduce your total
QHEE.
Total QHEE ..........................$5,800
Minus: Tax-free educational assistance ......− 1,500
Minus: Expenses taken into account in
figuring American opportunity credit .......
− 4,000
Equals: Adjusted qualified higher education
expenses (AQHEE) ................... $ 300
Since the AQHEE ($300) are less than the Coverdell ESA
distribution ($1,000), part of the distribution will be taxa-
ble. The balance in your account was $1,800 on Decem-
ber 31, 2023. Prior to 2023, $2,100 had been contributed
to this account. Contributions for 2023 totaled $400. Using
the four steps outlined earlier, you figure the taxable por-
tion of your distribution as shown below.
1.
$1,000
(distribution)
×
$2,100 basis + $400 contributions
$1,800 value + $1,000 distribution
= $893 (basis portion of distribution)
2. $1,000 (distribution) − $893 (basis portion of distribution)
= $107 (earnings included in distribution)
3. $107 (earnings) ×
   $300 AQHEE   
$1,000 distribution
= $32 (tax-free earnings)
4. $107 (earnings) − $32 (tax-free earnings)
= $75 (taxable earnings)
You must include $75 in income (Schedule 1 (Form 1040),
line 8z). This is the amount of distributed earnings not
used for AQHEE.
Coordination With Qualified Tuition Program
(QTP) Distributions
If a designated beneficiary receives distributions from both
a Coverdell ESA and a QTP in the same year, and the total
distribution is more than the beneficiary's AQEE, those ex-
penses must be allocated between the distribution from
the Coverdell ESA and the distribution from the QTP be-
fore figuring how much of each distribution is taxable. The
following two examples illustrate possible allocations.
Example 1. In 2023, you graduated from high school
and began your first semester of college. That year, you
had $1,000 of qualified elementary and secondary educa-
tion expenses (QESEE) for high school and $3,000 of
QHEE for college. Your QESEE doesn't include tuition. To
pay these expenses, you withdrew $800 from your Cover-
dell ESA and $4,200 from your QTP. No one claimed you
as a dependent, nor were you eligible for an education
credit. You didn't receive any tax-free educational assis-
tance in 2023. You must allocate your total qualified edu-
cation expenses between the two distributions.
1. You know that tax-free treatment will be available if
you apply your $800 Coverdell ESA distribution to-
ward your $1,000 of qualified education expenses for
high school. The qualified expenses are greater than
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the distribution, making the $800 Coverdell ESA distri-
bution tax free.
2. Next, you match your $4,200 QTP distribution to your
$3,000 of QHEE, and find you have an excess QTP
distribution of $1,200 ($4,200 QTP − $3,000 QHEE).
You can't use the extra $200 of high school expenses
(from (1) above) against the QTP distribution because
those expenses are not high school tuition expenses
and don't qualify a QTP for tax-free treatment.
3. Finally, you figure the taxable and tax-free portions of
your QTP distribution based on your $3,000 of QHEE.
(See Figuring the Taxable Portion of a Distribution in
chapter 7 for more information.)
Example 2. Assume the same facts as in Example 1,
except that you withdrew $1,800 from your Coverdell ESA
and $3,200 from your QTP. In this case, you allocate your
qualified education expenses as follows.
1. Using the same reasoning as in Example 1, you
match $1,000 of your Coverdell ESA distribution to
your $1,000 of QESEE—you have $800 of your distri-
bution remaining.
2. Because higher education expenses can also qualify
a Coverdell ESA distribution for tax-free treatment,
you allocate your $3,000 of QHEE between the re-
maining $800 Coverdell ESA and the $3,200 QTP dis-
tributions ($4,000 total).
$3,000
QHEE
×
$800 ESA distribution
$4,000 total distribution
=
$600
QHEE (ESA)
$3,000
QHEE
×
$3,200 QTP distribution
$4,000 total distribution
=
$2,400
QHEE
(QTP)
3. You then figure the taxable part of the following.
a. Coverdell ESA distribution based on qualified edu-
cation expenses of $1,600 ($1,000 QESEE +
$600 QHEE). See Figuring the Taxable Portion of
a Distribution, earlier, in this chapter.
b. QTP distribution based on her $2,400 of QHEE
(see Figuring the Taxable Portion of a Distribution
in chapter 7).
The above examples show two types of allocation
between distributions from a Coverdell ESA and a
QTP. However, you don't have to allocate your ex-
penses in the same way. You can use any reasonable
method.
Losses on Coverdell ESA Investments
For tax years beginning after 2017 and before 2026, if you
have a loss on your investment in a Coverdell ESA, you
can’t deduct the loss on your income tax return. You have
a loss only when all amounts from that account have been
distributed and the total distributions are less than your
unrecovered basis. Your basis is the total amount of contri-
butions to that Coverdell ESA.
TIP
Additional Tax on Taxable Distributions
Generally, if you receive a taxable distribution, you must
also pay a 10% additional tax on the amount included in
income.
Exceptions. The 10% additional tax doesn't apply to the
following distributions.
1. Paid to a beneficiary (or to the estate of the designa-
ted beneficiary) on or after the death of the designa-
ted beneficiary.
2. Made because the designated beneficiary is disabled.
A person is considered to be disabled if proof is provi-
ded showing there is a physical or mental impairment
that substantially limits any gainful activity. A physician
must determine that the person's condition can be ex-
pected to result in death or to be of long-continued
and indefinite duration.
3. Included in income because the designated benefi-
ciary received:
a. A tax-free scholarship or fellowship grant (see
Tax-Free Scholarships and Fellowship Grants in
chapter 1);
b. Veterans' educational assistance (see Veterans'
Benefits in chapter 1);
c. Employer-provided educational assistance (see
chapter 10); or
d. Any other nontaxable (tax-free) payments (other
than gifts or inheritances) received as educational
assistance.
This exception applies only to the extent the distri-
bution isn't more than the scholarship, allowance, or
payment.
4. Made on account of the attendance of the designated
beneficiary at a U.S. military academy (such as the
USMA at West Point). This exception applies only to
the extent that the amount of the distribution doesn't
exceed the costs of advanced education (as defined
in section 2005(d)(3) of title 10 of the U.S. Code) at-
tributable to such attendance.
5. Included in income only because the qualified educa-
tion expenses were taken into account in determining
the American opportunity or lifetime learning credit
(see Coordination With American Opportunity and
Lifetime Learning Credits, earlier).
6. Made before June 1, 2024, of an excess 2023 contri-
bution (and any earnings on it). The distributed earn-
ings must be included in gross income for the year in
which the excess contribution was made.
Figuring the additional tax. Use Part II of Form 5329 to
figure any additional tax. Report the amount on Schedule
2 (Form 1040), line 8.
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When Assets Must Be Distributed
Any assets remaining in a Coverdell ESA must be distrib-
uted when either one of the following two events occurs.
1. The designated beneficiary reaches age 30. In this
case, the remaining assets must be distributed within
30 days after the beneficiary reaches age 30. How-
ever, this rule doesn't apply if the beneficiary is a spe-
cial needs beneficiary.
2. The designated beneficiary dies. In this case, the re-
maining assets must generally be distributed within
30 days after the date of death.
Exception for Transfer to Surviving Spouse
or Family Member
If a Coverdell ESA is transferred to a surviving spouse or
other family member as the result of the death of the des-
ignated beneficiary, the Coverdell ESA retains its status.
(“Family member” was defined earlier under Rollovers.)
This means the spouse or other family member can treat
the Coverdell ESA as their own and doesn't need to with-
draw the assets until they reach age 30. This age limita-
tion doesn't apply if the new beneficiary is a special needs
beneficiary. There are no tax consequences as a result of
the transfer.
How To Figure the Taxable Earnings
When a total distribution is made because the designated
beneficiary either reached age 30 or died, the earnings
that accumulated tax free in the account must be included
in taxable income. You determine these earnings as
shown in the following two steps.
1. Multiply the amount distributed by a fraction. The nu-
merator (top part) is the basis (contributions not previ-
ously distributed) at the end of 2022 plus total contri-
butions for 2023, and the denominator (bottom part) is
the balance in the account at the end of 2023 plus the
amount distributed during 2023.
2. Subtract the amount figured in (1) from the total
amount distributed during 2023. The result is the
amount of earnings included in the distribution.
For an example, see steps 1 and 2 of the Example un-
der Figuring the Taxable Portion of a Distribution, earlier.
The beneficiary or other person receiving the distribu-
tion must report this amount on Schedule 1 (Form 1040),
line 8z, listing the type and amount of income.
Coverdell ESA—Taxable Distributions and Basis
Line G. Enter the total distributions received from all Coverdell ESAs during 2023. Don't include amounts rolled over to another ESA
within 60 days (only one rollover is allowed during any 12-month period). Also, don't include excess contributions that were
distributed with the related earnings (or less any loss) before the first day of the sixth month of the tax year following the year for
which the contributions were made.
Line 2. Your basis (amount already taxed) in this Coverdell ESA as of December 31, 2022, is the total of:
• All contributions to this Coverdell ESA before 2023, minus
• The tax-free portion of any distributions from this Coverdell ESA before 2023.
If your last distribution from this Coverdell ESA was before 2023, you must start with the basis in your account as of the end of
the last year in which you took a distribution. For years before 2002, you can find that amount on the last line of the worksheet in
the Instructions for Form 8606, Nondeductible IRAs, that you completed for that year. For years after 2001, you can find that
amount by using the ending basis from the worksheet in Pub. 970 for that year. You can determine your basis in this Coverdell
ESA as of December 31, 2022, by adding to the basis as of the end of that year any contributions made to that account after the
year of the distribution and before 2023.
Line 4. Enter the total distributions received from this Coverdell ESA in 2023. Don't include amounts rolled over to another Coverdell
ESA within 60 days (only one rollover is allowed during any 12-month period).
Also, don't include excess contributions that were distributed with the related earnings (or less any loss) before the first day of
the sixth month of the tax year following the year of the contributions.
Line 7. Enter the total value of this Coverdell ESA as of December 31, 2023, plus any outstanding rollovers contributed to the account
after 2022, but before the end of the 60-day rollover period. A statement should be sent to you by January 31, 2024, for this
Coverdell ESA showing the value on December 31, 2023.
A rollover is a tax-free withdrawal from one Coverdell ESA that is contributed to another Coverdell ESA. An outstanding
rollover is any amount withdrawn within 60 days before the end of 2023 (November 2 through December 31) that was rolled
over after December 31, 2023, but within the 60-day rollover period.
Worksheet 6-3 Instructions.
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Coverdell ESA—Taxable Distributions and
Basis
Worksheet 6-3.
Keep for Your Records
How to complete this worksheet.
  •
  •
  •
Complete Part I, lines A through H, on only one worksheet.
Complete a separate Part II, lines 1 through 15, for each of your Coverdell ESAs.
Complete Part III, the Summary (line 16), on only one worksheet.
Caution. If you had a distribution from a qualified tuition program (QTP), see Coordination With Qualified Tuition Program (QTP)
Distributions.
Part I. Qualified Education Expenses (Complete for total expenses.)
 A. Enter your total qualified education expenses for 2023 .....................................
 A.
 B. Enter those qualified education expenses paid for with tax-free
educational assistance (for example, tax-free scholarships, veterans'
educational benefits, Pell grants, employer-provided educational
assistance) ..............................................  B.
 C. Enter those qualified higher education expenses deducted on
Schedule C (Form 1040), Schedule F (Form 1040), or Schedule 1 (Form
1040), line 12 ............................................. C.
 D. Enter those qualified higher education expenses on which
an American opportunity or lifetime learning credit was based .......  D.
 E. Add lines B, C, and D ...............................................................
 E.
 F. Subtract line E from line A. This is your AQEE for 2023 .....................................
 F.
 G. Enter your total distributions from all Coverdell ESAs during 2023. Don't include rollovers
or the return of excess contributions. See instructions ...................................... G.
 H. Divide line F by line G. Enter the result as a decimal (rounded to at least 3 places). If the
result is 1.000 or more, enter 1.000 ....................................................  H.
.
Part II. Taxable Distributions and Basis (Complete separately for each account.)
 1. Enter the amount contributed to this Coverdell ESA for 2023, including contributions made for 2023
from January 1, 2024, through the due date (not including extensions) for filing your 2023 return. Don't
include rollovers or the return of excess contributions ......................................  1.
 2. Enter your basis in this Coverdell ESA as of December 31, 2022. See instructions ...............
 2.
 3. Add lines 1 and 2 ..................................................................
 3.
 4. Enter the total distributions from this Coverdell ESA during 2023. Don't include rollovers
or the return of excess contributions. See instructions ......................................  4.
 5. Multiply line 4 by line H. This is the amount of AQEE attributable to this
Coverdell ESA ............................................  5.
 6. Subtract line 5 from line 4 ....................................
 6.
 7. Enter the total value of this Coverdell ESA as of December 31, 2023,
plus any outstanding rollovers. See instructions ..................  7.
 8. Add lines 4 and 7 ..........................................
 8.
 9. Divide line 3 by line 8. Enter the result as a decimal (rounded to at least
3 places). If the result is 1.000 or more, enter 1.000 ...............  9.
.
10. Multiply line 4 by line 9. This is the amount of basis allocated to your distributions, and is tax
free ............................................................................ 10.
Note. If line 6 is zero, skip lines 11 through 13, enter -0- on line 14, and go to line 15.
11. Subtract line 10 from line 4 ..........................................................
11.
12. Divide line 5 by line 4. Enter the result as a decimal (rounded to
at least 3 places). If the result is 1.000 or more, enter 1.000 ......... 12.
.
13. Multiply line 11 by line 12. This is the amount of qualified education expenses allocated to your
distributions, and is tax free .......................................................... 13.
14. Subtract line 13 from line 11. This is the portion of the distributions from this Coverdell ESA in
2023 that you must include in income ............................................... 14.
15. Subtract line 10 from line 3. This is your basis in this Coverdell ESA as of December
31, 2023 ........................................................................ 15.
Part III. Summary (Complete only once.)
16. Taxable amount. Add together all amounts on line 14 for all your Coverdell ESAs. Enter here
and include on Schedule 1 (Form 1040), line 8z, listing the type and amount of income ......... 16.
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7.
Qualified Tuition Program
(QTP)
What’s New for 2024
Rollover to Roth IRA. The Secure 2.0 Act of 2022 upda-
ted section 529. For distributions after 12/31/2023, section
529(c)(3)(E) outlines a new rollover provision from
long-term Qualified Tuition Programs to Roth IRAs.
Introduction
QTPs are also called 529 plans. States may establish and
maintain programs that allow you to either prepay or con-
tribute to an account for paying a student's qualified edu-
cation expenses at an eligible educational institution. Eligi-
ble educational institutions may establish and maintain
programs that allow you to prepay a student's qualified ed-
ucation expenses. If you prepay tuition, the student (desig-
nated beneficiary) will be entitled to a waiver or a payment
of qualified education expenses. You can't deduct either
payments or contributions to a QTP. For information on a
specific QTP, you will need to contact the state agency or
eligible educational institution that established and main-
tains it.
What is the tax benefit of a QTP? No tax is due on a
distribution from a QTP unless the amount distributed is
greater than the beneficiary's adjusted qualified education
expenses (AQEE). See Are Distributions Taxable, later, for
more information.
Even if a QTP is used to finance a student's edu-
cation, the student or the student's parents may
still be eligible to claim the American opportunity
credit or the lifetime learning credit. See Coordination With
American Opportunity and Lifetime Learning Credits, later.
What Is a QTP?
A QTP is a program set up to allow you to either prepay or
contribute to an account established for paying a student's
qualified education expenses at an eligible educational in-
stitution. QTPs can be established and maintained by
states (or agencies or instrumentalities of a state) and eli-
gible educational institutions. The program must meet cer-
tain requirements. Your state government or the eligible
educational institution in which you are interested can tell
you whether or not they participate in a QTP.
TIP
Qualified Education Expenses
Generally, these are expenses required for the enrollment
or attendance of the designated beneficiary at an eligible
educational institution. For purposes of QTPs, the expen-
ses can be either qualified higher education expenses or
qualified elementary and secondary education expenses.
Designated beneficiary. The designated beneficiary is
generally the student (or future student) for whom the QTP
is intended to provide benefits. The designated benefi-
ciary can be changed after participation in the QTP be-
gins. If a state or local government or certain tax-exempt
organizations purchase an interest in a QTP as part of a
scholarship program, the designated beneficiary is the
person who receives the interest as a scholarship.
Eligible Educational Institution
For purposes of a QTP, an eligible educational institution
can be either an eligible postsecondary school or an eligi-
ble elementary or secondary school.
Eligible postsecondary school. An eligible postsecon-
dary school is generally any accredited public, nonprofit,
or proprietary (privately owned profit-making) college, uni-
versity, vocational school, or other postsecondary educa-
tional institution. Also, the institution must be eligible to
participate in a student aid program administered by the
U.S. Department of Education. Virtually all accredited
postsecondary institutions meet this definition. The edu-
cational institution should be able to tell you if it’s an eligi-
ble educational institution.
An eligible educational institution also includes certain
educational institutions located outside the United States
that are eligible to participate in a student aid program ad-
ministered by the U.S. Department of Education.
Eligible elementary or secondary school. An eligible
elementary or secondary school is any public, private, or
religious school that provides elementary or secondary
education (kindergarten through grade 12), as determined
under state law.
Qualified Higher Education Expenses
These are expenses related to enrollment or attendance
at an eligible postsecondary school. As shown in the fol-
lowing list, to be qualified, some of the expenses must be
required by the school and some must be incurred by stu-
dents who are enrolled at least half-time, defined later.
1. The following expenses must be required for enroll-
ment or attendance of a designated beneficiary at an
eligible postsecondary school.
a. Tuition and fees.
b. Books, supplies, and equipment.
2. Expenses for special needs services needed by a
special needs beneficiary must be incurred in connec-
tion with enrollment or attendance at an eligible post-
secondary school.
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3. Expenses for room and board must be incurred by
students who are enrolled at least half-time (defined
later).
The expense for room and board qualifies only to
the extent that it isn't more than the greater of the fol-
lowing two amounts.
a. The allowance for room and board, as determined
by the school, that was included in the cost of at-
tendance (for federal financial aid purposes) for a
particular academic period and living arrangement
of the student.
b. The actual amount charged if the student is resid-
ing in housing owned or operated by the school.
You may need to contact the eligible educational in-
stitution for qualified room and board costs.
4. The purchase of computer or peripheral equipment,
computer software, or Internet access and related
services, if it's to be used primarily by the beneficiary
during any of the years the beneficiary is enrolled at
an eligible postsecondary school. (This doesn't in-
clude expenses for computer software for sports,
games, or hobbies unless the software is predomi-
nantly educational in nature.)
5. The expenses for fees, books, supplies, and equip-
ment required for the designated beneficiary’s partici-
pation in an apprenticeship program registered and
certified with the Secretary of Labor under section 1
of the National Apprenticeship Act.
6. No more than $10,000 paid as principal or interest on
qualified student loans of the designated beneficiary
or the designated beneficiary’s sibling. A sibling in-
cludes a brother, sister, stepbrother, or stepsister. For
purposes of the $10,000 limitation, amounts treated
as a qualified higher education expense for the loans
of a sibling are taken into account for the sibling and
not for the designated beneficiary. You can’t deduct as
interest on a student loan (see chapter 4) any amount
paid from a distribution of earnings from a QTP after
2018 to the extent the earnings are treated as tax free
because they were used to pay student loan interest.
Half-time student. A student is enrolled “at least
half-time” if the student is enrolled for at least half the
full-time academic workload for the course of study the
student is pursuing, as determined under the standards of
the school where the student is enrolled.
Qualified Elementary and Secondary
Education Expenses
These are expenses for no more than $10,000 of tuition,
incurred by a designated beneficiary, in connection with
enrollment or attendance at an eligible elementary or sec-
ondary school.
How Much Can You
Contribute?
Contributions to a QTP on behalf of any beneficiary can't
be more than the amount necessary to provide for the
qualified education expenses of the beneficiary. There are
no income restrictions on the individual contributors.
You can contribute to both a QTP and a Coverdell edu-
cation savings account (ESA) in the same year for the
same designated beneficiary.
Recontribution of Refunded
Amounts
If a student receives a refund of qualified education ex-
penses that were treated as paid by a QTP distribution,
the student can recontribute these amounts into any QTP
for which they are the beneficiary within 60 days after the
date of the refund to avoid the need to figure the taxable
part of the QTP distribution.
Are Distributions Taxable?
The part of a distribution representing the amount paid or
contributed to a QTP doesn't have to be included in in-
come. This is a return of the investment in the plan.
The designated beneficiary generally doesn't have to
include in income any earnings distributed from a QTP if
the total distribution is less than or equal to AQEE (defined
under Figuring the Taxable Portion of a Distribution, be-
low).
Earnings and return of investment. You will receive a
Form 1099-Q from each of the programs from which you
received a QTP distribution in 2023. The amount of your
gross distribution (box 1) shown on each form will be divi-
ded between your earnings (box 2) and your basis, or re-
turn of investment (box 3). Form 1099-Q should be sent to
you by January 31, 2024.
Figuring the Taxable Portion of a
Distribution
To determine if total distributions for the year are more or
less than the amount of qualified education expenses, you
must compare the total of all QTP distributions for the tax
year to the AQEE.
Adjusted qualified education expenses (AQEE). This
amount is the total qualified education expenses reduced
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by any tax-free educational assistance. Tax-free educa-
tional assistance includes:
•
The tax-free part of scholarships and fellowship grants
(see Tax-Free Scholarships and Fellowship Grants in
chapter 1);
•
Veterans' educational assistance (see Veterans' Bene-
fits in chapter 1);
•
The tax-free part of Pell grants (see Pell Grants and
Other Title IV Need-Based Education Grants in chap-
ter 1);
•
Employer-provided educational assistance (see chap-
ter 10); and
•
Any other nontaxable (tax-free) payments (other than
gifts or inheritances) received as educational assis-
tance.
Taxable earnings. Use the following steps to figure the
taxable part.
1. Multiply the total distributed earnings shown in box 2
of Form 1099-Q by a fraction. The numerator (top
part) is the AQEE paid during the year, and the de-
nominator (bottom part) is the total amount distributed
during the year.
2. Subtract the amount figured in (1) from the total dis-
tributed earnings. The result is the amount the benefi-
ciary must include in income. Report it on Schedule 1
(Form 1040), line 8z.
Example 1. In 2014, a young student’s parents
opened a savings account for them with a QTP main-
tained by their state government. Over the years, the pa-
rents contributed $18,000 to the account. The total bal-
ance in the account was $27,000 on the date the
distribution was made. In the summer of 2023, the student
enrolled in college and had $8,300 of qualified education
expenses for the rest of the year. The college expenses
were paid from the following sources.
Gift from parents .................... $1,600
Partial tuition scholarship (tax free) ....... 3,100
QTP distribution .................... 5,300
Before the student can determine the taxable part of
their QTP distribution, they must reduce their total quali-
fied education expenses by any tax-free educational as-
sistance.
Total qualified education expenses ....... $8,300
Minus: Tax-free educational assistance ... – 3,100
Equals: AQEE ..................... $5,200
Since the remaining expenses ($5,200) are less than the
QTP distribution, part of the earnings will be taxable.
The student’s Form 1099-Q shows that $950 of the
QTP distribution is earnings. They figure the taxable part
of the distributed earnings as follows.
1. $950 (earnings) ×
$5,200 AQEE
$5,300 distribution
= $932 (tax-free earnings)
2. $950 (earnings) − $932 (tax-free earnings)
= $18 (taxable earnings)
They must include $18 in income (Schedule 1 (Form
1040), line 8z) as distributed QTP earnings not used for
AQEE.
Coordination With American Opportunity
and Lifetime Learning Credits
An American opportunity or lifetime learning credit (educa-
tion credit) can be claimed in the same year the benefi-
ciary takes a tax-free distribution from a QTP, as long as
the same expenses aren't used for both benefits. This
means that after the beneficiary reduces qualified educa-
tion expenses by tax-free educational assistance, the ben-
eficiary must further reduce them by the expenses taken
into account in determining the credit.
Example 2. Assume the same facts as in Example 1,
except that the parents claimed an American opportunity
credit of $2,500 (based on $4,000 expenses).
Total qualified education expenses ......... $8,300
Minus: Tax-free educational assistance ...... − 3,100
Minus: Expenses taken into account in figuring
American opportunity credit .............. − 4,000
Equals: AQEE ........................ $1,200
The taxable part of the distribution is figured as follows.
1. $950 (earnings) ×
$1,200 AQEE  
$5,300 distribution
= $215 (tax-free earnings)
2. $950 (earnings) − $215 (tax-free earnings)
= $735 (taxable earnings)
The student must include $735 in income (Schedule 1
(Form 1040), line 8z). This represents distributed earnings
not used for AQEE.
Coordination With Coverdell ESA
Distributions
If a designated beneficiary receives distributions from both
a QTP and a Coverdell ESA in the same year, and the total
of these distributions is more than the beneficiary's AQEE,
the expenses must be allocated between the distributions.
Example 3. Assume the same facts as in Example 2,
except that instead of receiving a $5,300 distribution from
their QTP, the student received $4,600 from that account
and $700 from their Coverdell ESA. In this case, the stu-
dent must allocate their $1,200 of AQEE between the two
distributions.
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$1,200
AQEE
×
$700 ESA distribution
$5,300 total distribution
=
$158
AQEE (ESA)
$1,200
AQEE
×
$4,600 QTP distribution
$5,300 total distribution
=
$1,042
AQEE (QTP)
The student then figures the taxable portion of their
Coverdell ESA distribution based on qualified education
expenses of $158, and the taxable portion of their QTP
distribution based on the other $1,042.
Note. If you are required to allocate your expenses be-
tween Coverdell ESA and QTP distributions, and you have
adjusted qualified elementary and secondary education
expenses, see the examples in chapter 6 under Coordina-
tion With Qualified Tuition Program (QTP) Distributions.
Losses on QTP Investments
For tax years beginning after 2017 and before 2026, if you
have a loss on your investment in a QTP account, you
can’t claim the loss on your income tax return. You have a
loss only when all amounts from that account have been
distributed and the total distributions are less than your
unrecovered basis. Your basis is the total amount of contri-
butions to that QTP account.
The aggregation rules that applied if you had dis-
tributions from more than one QTP account during
a year were eliminated for distributions after 2014.
For more information, see Notice 2016-13, available at
IRS.gov/IRB/2016-07_IRB#NOT-2016-13.
Additional Tax on Taxable
Distributions
Generally, if you receive a taxable distribution, you must
also pay a 10% additional tax on the amount included in
income.
Exceptions. The 10% additional tax doesn't apply to the
following distributions.
1. Paid to a beneficiary (or to the estate of the designa-
ted beneficiary) on or after the death of the designa-
ted beneficiary.
2. Made because the designated beneficiary is disabled.
A person is considered to be disabled if proof is provi-
ded showing there is a physical or mental impairment
that substantially limits any gainful activity. A physician
must determine that the person's condition can be ex-
pected to result in death or to be of long-continued
and indefinite duration.
3. Included in income because the designated benefi-
ciary received:
a. A tax-free scholarship or fellowship grant (see
Tax-Free Scholarships and Fellowship Grants in
chapter 1);
b. Veterans' educational assistance (see Veterans'
Benefits in chapter 1);
CAUTION
!
c. Employer-provided educational assistance (see
chapter 10); or
d. Any other nontaxable (tax-free) payments (other
than gifts or inheritances) received as educational
assistance.
This exception only applies to the extent the distri-
bution isn't more than the scholarship, allowance, or
payment.
4. Made on account of the attendance of the designated
beneficiary at a U.S. military academy (such as the
USNA at Annapolis). This exception applies only to
the extent that the amount of the distribution doesn't
exceed the costs of advanced education (as defined
in section 2005(d)(3) of title 10 of the U.S. Code) at-
tributable to such attendance.
5. Included in income only because the qualified educa-
tion expenses were taken into account in determining
the American opportunity or lifetime learning credit
(see Coordination With American Opportunity and
Lifetime Learning Credits, earlier).
Figuring the additional tax. Use Part II of Form 5329 to
figure any additional tax. Report the amount on Schedule
2 (Form 1040), line 8.
Rollovers and Other Transfers
Assets can be rolled over or transferred from one QTP to
another or from a QTP to an ABLE account. In addition,
the designated beneficiary can be changed without trans-
ferring accounts.
Rollovers
Any amount distributed from a QTP isn't taxable if it's rol-
led over to either:
•
Another QTP for the benefit of the same beneficiary or
for the benefit of a member of the beneficiary's family
(including the beneficiary's spouse), or
•
An ABLE account for the benefit of the same benefi-
ciary or for the benefit of a member of the beneficiary’s
family (including the beneficiary’s spouse). But this
doesn’t apply to the extent the amount distributed
when added to other amounts contributed to the ABLE
account exceeds the annual contribution limit. For
more information about ABLE accounts, see Pub. 907,
Tax Highlights for Persons With Disabilities.
You should contact the qualified ABLE program
before contributing any funds to the ABLE ac-
count to ensure that the contribution limit will not
be exceeded.
An amount is rolled over if it's paid to an ABLE account
or another QTP within 60 days after the date of the distri-
bution.
CAUTION
!
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Don't report qualifying rollovers (those that meet the
above criteria) anywhere on Form 1040, 1040-SR, or
1040-NR. These aren't taxable distributions.
Members of the beneficiary's family. For these purpo-
ses, the beneficiary's family includes the beneficiary's
spouse and the following other relatives of the beneficiary.
1. Son, daughter, stepchild, foster child, adopted child,
or a descendant of any of them.
2. Brother, sister, stepbrother, or stepsister.
3. Father or mother or ancestor of either.
4. Stepfather or stepmother.
5. Son or daughter of a brother or sister.
6. Brother or sister of father or mother.
7. Son-in-law, daughter-in-law, father-in-law,
mother-in-law, brother-in-law, or sister-in-law.
8. The spouse of any individual listed above.
9. First cousin.
Example. When you graduated from college in Janu-
ary last year, you had $5,000 left in your QTP. You wanted
to give this money to your younger sibling, who was in jun-
ior high school. In order to avoid paying tax on the distribu-
tion of the amount remaining in your account, you contrib-
uted the same amount to your sibling's QTP within 60
days of the distribution.
If the rollover is to another QTP for the same ben-
eficiary, generally, only one rollover is allowed
within 12 months of a previous transfer to any
QTP for that designated beneficiary. However, taxpayers
who receive a Form 1099-Q with respect to a qualifying
rollover to or from the Maryland Prepaid College Trust
(MPCT) and meet the criteria of Notice 2024-23 are not
subject to the 12-month limitation. Notice 2024-23 will be
available in IRB 2024-7, available at IRS.gov/IRB.
Changing the Designated Beneficiary
There are no income tax consequences if the designated
beneficiary of an account is changed to a member of the
beneficiary's family. See Members of the beneficiary's
family, earlier.
Example. Assume the same situation as in the last ex-
ample. Instead of closing your QTP and paying the distri-
bution into your sibling's QTP, you could have instructed
the trustee of your account to simply change the name of
the beneficiary on the account to that of your sibling.
CAUTION
!
8.
Education Exception to
Additional Tax on Early
IRA Distributions
Introduction
Generally, if you take a distribution from your IRA before
you reach age 59
1
/2, you must pay a 10% additional tax on
the early distribution. This applies to any IRA you own,
whether it is a traditional IRA (including a SEP-IRA), a
Roth IRA, or a SIMPLE IRA. The additional tax on an early
distribution from a SIMPLE IRA may be as high as 25%.
See Pub. 560, Retirement Plans for Small Business, for in-
formation on SEP-IRAs, and Pub. 590-B for information
about distributions from all other IRAs.
However, you can take distributions from your IRAs for
qualified higher education expenses without having to pay
the 10% additional tax. You may owe income tax on at
least part of the amount distributed, but you may not have
to pay the 10% additional tax.
Generally, if the taxable part of the distribution is less
than or equal to the adjusted qualified education expen-
ses (AQEE), none of the distribution is subject to the addi-
tional tax. If the taxable part of the distribution is more than
the AQEE, only the excess is subject to the additional tax.
Who Is Eligible?
You can take a distribution from your IRA before you reach
age 59
1
/2 and not have to pay the 10% additional tax if, for
the year of the distribution, you pay qualified education ex-
penses for:
•
Yourself;
•
Your spouse;
•
Your or your spouse's child, foster child, or adopted
child; or
•
Your or your spouse’s grandchild.
Qualified education expenses. For purposes of the
10% additional tax, these expenses are tuition, fees,
books, supplies, and equipment required for enrollment or
attendance at an eligible educational institution. They also
include expenses for special needs services incurred by
or for special needs students in connection with their en-
rollment or attendance.
In addition, if the student is at least a half-time student,
room and board are qualified education expenses.
The expense for room and board qualifies only to the
extent that it isn't more than the greater of the following
two amounts.
54 Chapter 8 Education Exception to Additional Tax on Early
IRA Distributions
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1. The allowance for room and board, as determined by
the eligible educational institution, that was included
in the cost of attendance (for federal financial aid pur-
poses) for a particular academic period and living ar-
rangement of the student.
2. The actual amount charged if the student is residing in
housing owned or operated by the eligible educational
institution.
You may need to contact the eligible educational institu-
tion for qualified room and board costs.
Eligible educational institution. An eligible educational
institution is any college, university, vocational school, or
other postsecondary educational institution eligible to par-
ticipate in a student aid program administered by the U.S.
Department of Education. Virtually all accredited public,
non-profit, and proprietary (privately owned profit-making)
postsecondary institutions meet this definition.
An eligible educational institution also includes certain
educational institutions located outside the United States
that are eligible to participate in a student aid program ad-
ministered by the U.S. Department of Education.
The educational institution should be able to tell
you if it is an eligible educational institution.
Half-time student. A student is enrolled “at least
half-time” if the student is enrolled for at least half the
full-time academic workload for the course of study the
student is pursuing as determined under the standards of
the school where the student is enrolled.
Figuring the Amount Not
Subject to the 10% Tax
To determine the amount of your distribution that isn't sub-
ject to the 10% additional tax, first figure your AQEE. You
do this by reducing your total qualified education expen-
ses by any tax-free educational assistance, which in-
cludes:
•
Expenses used to figure the tax-free portion of distri-
butions from a Coverdell education savings account
(ESA) (see Distributions in chapter 6);
•
The tax-free part of scholarships and fellowship grants
(see Tax-Free Scholarships and Fellowship Grants in
chapter 1);
•
The tax-free part of Pell grants (see Pell Grants and
Other Title IV Need-Based Education Grants in chap-
ter 1);
•
Veterans' educational assistance (see Veterans' Bene-
fits in chapter 1);
•
Employer-provided educational assistance (see chap-
ter 10); and
TIP
•
Any other nontaxable (tax-free) payments (other than
gifts or inheritances) received as educational assis-
tance.
Don't reduce the qualified education expenses by
amounts paid with funds the student receives as:
•
Payment for services, such as wages;
•
A loan;
•
A gift;
•
An inheritance given to either the student or the indi-
vidual making the withdrawal; or
•
A withdrawal from personal savings (including savings
from a qualified tuition program (QTP)).
If your IRA distribution is equal to or less than your
AQEE, you aren't subject to the 10% additional tax.
Example 1. In 2023, a teacher (age 32) took a year off
from teaching to attend graduate school full time. They
paid $5,800 of qualified education expenses from the fol-
lowing sources.
Employer-provided educational assistance
(tax free) .......................... $5,000
Early distribution from IRA
(taxable part is $500) .................. 3,200
Before the teacher can determine if they must pay the
10% additional tax on their IRA distribution, they must re-
duce their total qualified education expenses.
Total qualified education expenses ......... $5,800
Minus: Tax-free educational assistance ......− 5,000
Equals: AQEE $  800
Because the teacher’s AQEE ($800) is more than the
taxable part of their IRA distribution ($500), they don't
have to pay the 10% additional tax on any part of this dis-
tribution. However, they must include the $500 taxable
earnings in their gross income subject to income tax.
Example 2. Assume the same facts as in Example 1,
except that the teacher deducted some of the contribu-
tions to their IRA, so the taxable part of their early distribu-
tion is $1,000. This must be included in their income sub-
ject to income tax.
The taxable part of the teacher's IRA distribution
($1,000) is larger than their $800 AQEE. Therefore, they
must pay the 10% additional tax on $200, the taxable part
of their distribution ($1,000) that is more than their AQEE
($800). The teacher doesn't have to pay the 10% addi-
tional tax on the remaining $800 of their taxable distribu-
tion.
Reporting Early Distributions
By January 31, 2024, the payer of your IRA distribution
should send you Form 1099-R, Distributions From
Pensions, Annuities, Retirement or Profit-Sharing Plans,
Publication 970 (2023) Chapter 8 Education Exception to Additional Tax on Early
IRA Distributions
55
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IRAs, Insurance Contracts, etc. The information on this
form will help you determine how much of your distribution
is taxable for income tax purposes and how much is sub-
ject to the 10% additional tax.
If you received an early distribution from your IRA, you
must report the taxable part of the distribution on Form
1040, 1040-SR, or 1040-NR, line 4b. Then, if you qualify
for an exception for qualified higher education expenses,
you must file Form 5329 to show how much, if any, of your
early distribution is subject to the 10% additional tax. See
the instructions for Form 5329, Part I, for help in complet-
ing the form and entering the results on Schedule 2 (Form
1040), line 8.
There are many other situations in which Form 5329 is
required. If, during 2023, you had other distributions from
IRAs or qualified retirement plans, or have made excess
contributions to certain tax-favored accounts, see the in-
structions for Schedule 2 (Form 1040), line 8, to determine
if you must file Form 5329.
9.
Education Savings Bond
Program
What's New
Modified adjusted gross income (MAGI) limits. For
2023, the amount of your education savings bond interest
exclusion is gradually reduced (phased out) if your MAGI
is between $91,850 and $106,850 ($137,800 and
$167,800 if you file a joint return). You can't exclude any of
the interest if your MAGI is $106,850 or more ($167,800 or
more if you file a joint return).
Introduction
Generally, you must pay tax on the interest earned on U.S.
savings bonds. If you don't include the interest in income
in the years it is earned, you must include it in your income
in the year in which you cash in the bonds.
However, when you cash in certain savings bonds un-
der an education savings bond program, you may be able
to exclude the interest from income.
Who Can Cash in Bonds Tax
Free?
You may be able to cash in qualified U.S. savings bonds
without having to include in your income some or all of the
interest earned on the bonds if you meet the following
conditions.
•
You pay qualified education expenses for yourself,
your spouse, or a dependent.
•
Your MAGI is less than $106,850 ($167,800 if married
filing jointly).
•
Your filing status isn't married filing separately.
Qualified U.S. savings bonds. A qualified U.S. savings
bond is a series EE bond issued after 1989 or a series I
bond. The bond must be issued either in your name (as
the sole owner) or in the name of both you and your
spouse (as co-owners).
The owner must be at least 24 years old before the
bond's issue date. The issue date is printed in the upper
right corner of a paper bond and shown in TreasuryDirect
for an electronic bond.
Qualified education expenses. These include the fol-
lowing items you pay for either yourself, your spouse, or a
dependent.
1. Tuition and fees required to enroll at or attend an eligi-
ble educational institution. Qualified education expen-
ses don't include expenses for room and board or for
courses involving sports, games, or hobbies that
aren't part of a degree or certificate-granting program.
2. Contributions to a qualified tuition program (QTP) (see
How Much Can You Contribute in chapter 7).
3. Contributions to a Coverdell education savings ac-
count (ESA) (see Contributions in chapter 6).
Adjusted qualified education expenses (AQEE).
You must reduce your qualified education expenses by all
of the following tax-free benefits.
1. Tax-free part of scholarships and fellowship grants
(see Tax-Free Scholarships and Fellowship Grants in
chapter 1).
2. Expenses used to figure the tax-free portion of distri-
butions from a Coverdell ESA (see Qualified Educa-
tion Expenses in chapter 6).
3. Expenses used to figure the tax-free portion of distri-
butions from a QTP (see Qualified Education Expen-
ses in chapter 7).
4. Any tax-free payments (other than gifts or inheritan-
ces) received as educational assistance, such as:
a. Veterans' educational assistance benefits (see
Veterans' Benefits in chapter 1);
b. Qualified tuition reductions (see Qualified Tuition
Reduction in chapter 1); or
c. Employer-provided educational assistance (see
chapter 10).
5. Any expenses used in figuring the American opportu-
nity and lifetime learning credits. See What Expenses
Qualify in chapter 2 (American opportunity credit),
and What Expenses Qualify in chapter 3 (lifetime
learning credit), for more information.
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Eligible educational institution. An eligible educa-
tional institution is any college, university, vocational
school, or other postsecondary educational institution eli-
gible to participate in a student aid program administered
by the U.S. Department of Education. Virtually all accredi-
ted public, non-profit, and proprietary (privately owned
profit-making) postsecondary institutions meet this defini-
tion.
An eligible educational institution also includes certain
educational institutions located outside the United States
that are eligible to participate in a student aid program ad-
ministered by the U.S. Department of Education.
The educational institution should be able to tell
you if it is an eligible educational institution.
Dependent. A person who qualifies as your depend-
ent will be listed by name in the Dependents section of
your Form 1040 or 1040-SR. See the Instructions for Form
1040.
Modified adjusted gross income (MAGI). For most
taxpayers, MAGI is adjusted gross income (AGI) as fig-
ured on their federal income tax return without taking into
account this interest exclusion. However, as discussed be-
low, there may be other modifications.
Your MAGI is the AGI on line 11 of Form 1040 or
1040-SR figured without taking into account any savings
bond interest exclusion and modified by adding back any:
1. Foreign earned income exclusion,
2. Foreign housing exclusion,
3. Foreign housing deduction,
4. Exclusion of income by bona fide residents of Ameri-
can Samoa,
5. Exclusion of income by bona fide residents of Puerto
Rico,
6. Exclusion for adoption benefits received under an em-
ployer's adoption assistance program, and
7. Deduction for student loan interest.
Use the worksheet in the instructions for line 9 of Form
8815 to figure your MAGI. If you claim any of the exclusion
or deduction items (1)–(6) listed above, add the amount of
the exclusion or deduction to the amount on line 5 of the
worksheet. Don't add in the deduction for (7) student loan
interest, because line 4 of the worksheet already includes
this amount. Enter the total on Form 8815, line 9, as your
MAGI.
Because the deduction for interest expenses at-
tributable to royalties and other investments is
limited to your net investment income, you can't
figure the deduction until you have figured this interest ex-
clusion. Therefore, if you had interest expenses attributa-
ble to royalties and deductible on Schedule E (Form
1040), Supplemental Income and Loss, you must make a
special computation of your deductible interest without re-
gard to this exclusion to figure the net royalty income inclu-
ded in your MAGI. See Royalties included in modified AGI
TIP
CAUTION
!
under Education Savings Bond Program in chapter 1 of
Pub. 550.
Figuring the Tax-Free Amount
If the total you receive when you cash in the bonds isn't
more than the AQEE for the year, all of the interest on the
bonds may be tax free. However, if the total you receive
when you cash in the bonds is more than the adjusted ex-
penses, only part of the interest may be tax free.
To determine the tax-free amount, multiply the interest
part of the proceeds by a fraction. The numerator (top
part) of the fraction is the AQEE you paid during the year.
The denominator (bottom part) of the fraction is the total
proceeds you received during the year.
Example. In February 2023, a married couple cashed
a qualified series EE U.S. savings bond. They received
proceeds of $9,000, representing principal of $6,000 and
interest of $3,000. In 2023, they paid $7,650 of their
child's college tuition. They aren't claiming an American
opportunity or lifetime learning credit for those expenses,
and their child doesn't have any tax-free educational as-
sistance. Their MAGI for 2023 was $90,000.
$3,000
interest
×
$7,650 AQEE
=
$2,550
tax-free interest
$9,000 proceeds
They can exclude $2,550 of interest in 2023. They must
pay tax on the remaining $450 ($3,000 − $2,550) of inter-
est.
Effect of the Amount of Your Income
on the Amount of Your Exclusion
The amount of your interest exclusion is gradually reduced
(phased out) if your MAGI is between $91,850 and
$106,850 (between $137,800 and $167,800 if your filing
status is married filing jointly). You can’t exclude any of the
interest if your MAGI is equal to or more than the upper
limit.
The phaseout, if any, is figured for you when you fill out
Form 8815.
Claiming the Exclusion
Use Form 8815 to figure your education savings bond in-
terest exclusion. Enter your exclusion on line 3 of Sched-
ule B (Form 1040), Interest and Ordinary Dividends. At-
tach Form 8815 to your tax return.
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10.
Employer-Provided
Educational Assistance
Reminder
Educational assistance benefits. Employer-provided
educational assistance benefits include payments made
after March 27, 2020, and before January 1, 2026, for
principal or interest on any qualified education loan you in-
curred for your education. See Educational assistance
benefits.
Introduction
If you receive educational assistance benefits from your
employer under an educational assistance program, you
can exclude up to $5,250 of those benefits each year. This
means your employer shouldn’t include those benefits
with your wages, tips, and other compensation shown in
box 1 of your Form W-2. This also means that you don’t
have to include the benefits on your income tax return.
You can’t use any of the tax-free education expen-
ses paid for by your employer as the basis for any
other deduction or credit, including the American
opportunity credit and lifetime learning credit.
Educational assistance program. To qualify as an edu-
cational assistance program, the plan must be written and
must meet certain other requirements. Your employer can
tell you whether there is a qualified program where you
work.
Educational assistance benefits. Tax-free educational
assistance benefits include payments for tuition, fees and
similar expenses, books, supplies, and equipment. Educa-
tion generally includes any form of instruction or training
that improves or develops your capabilities. The payments
don't have to be for work-related courses or courses that
are part of a degree program.
Tax-free educational assistance benefits also include
payments made after March 27, 2020, and before January
1, 2026, whether paid to the employee or to a lender, of
principal or interest on any qualified education loan (de-
fined later) incurred by the employee for education of the
employee.
Educational assistance benefits don't include payments
for the following items.
1. Meals, lodging, or transportation.
2. Tools or supplies (other than textbooks) that you can
keep after completing the course of instruction.
CAUTION
!
3. Courses involving sports, games, or hobbies unless
they:
a. Have a reasonable relationship to the business of
your employer, or
b. Are required as part of a degree program.
Qualified education loan. A qualified education loan is
generally the same as a qualified student loan. See Quali-
fied Student Loan in chapter 4. However, as discussed
earlier, the loan must be incurred by the employee for edu-
cation of the employee.
Benefits over $5,250. If your employer pays more than
$5,250 in educational assistance benefits for you during
the year, you must generally pay tax on the amount over
$5,250. Your employer should include in your wages
(box 1 of Form W-2) the amount that you must include in
income.
Working condition fringe benefit. However, if the
benefits over $5,250 also qualify as a working condition
fringe benefit, your employer doesn't have to include them
in your wages. A working condition fringe benefit is a ben-
efit that, had you paid for it, would be allowable as a busi-
ness expense deduction. For more information on working
condition fringe benefits, see Working Condition Benefits
in chapter 2 of Pub. 15-B, Employer's Tax Guide to Fringe
Benefits.
11.
Business Deduction for
Work-Related Education
What's New
Standard mileage rate. Generally, if you claim a busi-
ness deduction for work-related education and you drive
your car to and from school, the amount you can deduct
for miles driven from January 1, 2023, through December
31, 2023, is 65.5 cents a mile. For more information, see
Transportation Expenses under What Expenses Can Be
Deducted.
Reminder
Miscellaneous itemized deductions. For tax years be-
ginning after 2017 and before 2026, you no longer deduct
work-related education expenses as a miscellaneous
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itemized deduction subject to a 2%-of-adjusted-gross-in-
come floor.
Introduction
This chapter discusses work-related education expenses
you may be able to deduct as business expenses.
To claim such a deduction, you must:
•
File Schedule C (Form 1040), Profit or Loss From
Business, or Schedule F (Form 1040), Profit or Loss
From Farming, if you are self-employed;
•
File Form 2106, Employee Business Expenses, if you
are an Armed Forces reservist, a qualified performing
artist, a fee-based state or local government official, or
an individual with a disability claiming impairment-rela-
ted education expenses;
•
Itemize your deductions on Schedule A (Form 1040)
or Schedule A (Form 1040-NR), if you are an individ-
ual with a disability claiming impairment-related edu-
cation expenses; and
•
Have expenses for education that meet the require-
ments discussed under Qualifying Work-Related Edu-
cation, later.
What is the tax benefit of taking a business deduc-
tion for work-related education? If you are self-em-
ployed, you deduct your expenses for qualifying work-rela-
ted education directly from your self-employment income.
This reduces the amount of your income subject to both
income tax and self-employment tax.
If you are an Armed Forces reservist, qualified perform-
ing artist, or a fee-based state or local government official,
you deduct your expenses for qualifying work-related edu-
cation directly from your income as you figure your adjus-
ted gross income.
If you are an individual with a disability and can itemize
your deductions, you deduct your impairment-related edu-
cation expenses as an itemized deduction. An itemized
deduction reduces the amount of your income subject to
tax.
Your work-related education expenses may also qualify
you for other tax benefits, such as the American opportu-
nity (see chapter 2) and lifetime learning (see chapter 3)
credits. You may qualify for these other benefits even if
you don't meet the requirements listed above.
Also, your work-related education expenses may qual-
ify you to claim more than one tax benefit. Generally, you
may claim any number of benefits as long as you use dif-
ferent expenses to figure each one.
Qualifying Work-Related
Education
As discussed earlier, self-employed individuals, Armed
Forces reservists, certain artists, and certain government
officials can deduct the costs of qualifying work-related
education as business expenses. Individuals with a
disability can deduct impairment expenses related to this
education as an itemized deduction. This is education that
meets at least one of the following two tests.
•
The education is required by your employer or the law
to keep your present salary, status, or job. The re-
quired education must serve a bona fide business pur-
pose of your employer.
•
The education maintains or improves skills needed in
your present work.
However, even if the education meets one or both of
the above tests, it isn't qualifying work-related education if
it:
•
Is needed to meet the minimum educational require-
ments of your present trade or business, or
•
Is part of a program of study that will qualify you for a
new trade or business.
You can deduct the costs of qualifying work-related ed-
ucation as a business expense even if the education could
lead to a degree.
Use Figure 11-1 as a quick check to see if your educa-
tion qualifies.
Education Required by
Employer or by Law
Once you have met the minimum educational require-
ments for your job, your employer or the law may require
you to get more education. This additional education is
qualifying work-related education if all three of the follow-
ing requirements are met.
•
It is required for you to keep your present salary, sta-
tus, or job.
•
The requirement serves a bona fide business purpose
of your employer.
•
The education isn't part of a program that will qualify
you for a new trade or business.
When you get more education than your employer or
the law requires, the additional education can be qualify-
ing work-related education only if it maintains or improves
skills required in your present work. See Education To
Maintain or Improve Skills, later.
Example. You are a teacher who has satisfied the min-
imum requirements for teaching. Your employer requires
you to take an additional college course each year to keep
your teaching job. If the courses won't qualify you for a
new trade or business, they are qualifying work-related
education even if you eventually receive a master's degree
and an increase in salary because of this extra education.
Education To Maintain or
Improve Skills
If your education isn't required by your employer or the
law, it can be qualifying work-related education only if it
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maintains or improves skills needed in your present work.
This could include refresher courses, courses on current
developments, and academic or vocational courses.
Example. You repair televisions, radios, and stereo
systems for XYZ Store. To keep up with the latest
changes, you take special courses in radio and stereo
service. These courses maintain and improve skills re-
quired in your work.
Maintaining skills vs. qualifying for new job. Educa-
tion to maintain or improve skills needed in your present
work isn't qualifying education if it will also qualify you for a
new trade or business.
Education during temporary absence. If you stop
working for a year or less in order to get education to
maintain or improve skills needed in your present work
and then return to the same general type of work, your ab-
sence is considered temporary. Education that you get
during a temporary absence is qualifying work-related ed-
ucation if it maintains or improves skills needed in your
present work.
Example. You quit your biology research job to be-
come a full-time biology graduate student for 1 year. If you
return to work in biology research after completing the
courses, the education is related to your present work
even if you don't go back to work with the same employer.
Education during indefinite absence. If you stop
work for more than a year, your absence from your job is
considered indefinite. Education during an indefinite ab-
sence, even if it maintains or improves skills needed in the
work from which you are absent, is considered to qualify
you for a new trade or business. Therefore, it isn't qualify-
ing work-related education.
Education To Meet
Minimum Requirements
Education you need to meet the minimum educational re-
quirements for your present trade or business isn't qualify-
ing work-related education. The minimum educational re-
quirements are determined by:
•
Laws and regulations;
•
Standards of your profession, trade, or business; and
•
Your employer.
Once you have met the minimum educational require-
ments that were in effect when you were hired, you don't
have to meet any new minimum educational requirements.
This means that if the minimum requirements change after
you were hired, any education you need to meet the new
requirements can be qualifying education.
Figure 11-1. Does Your Work-Related Education Qualify?
Start Here
Yes
Is the education required by your employer or
the law to keep your present salary, status, or
job?
Does the requirement serve a
bona de business requirement
of your employer?
Is the education needed to meet the minimum
educational requirements of your present trade
or business?
Is the education part of a program of study
that will qualify you for a new trade or
business?
Does the education maintain or
improve skills needed in your
present work?
Your education isn’t
qualifying work-related
education.
No
No
No
Yes
Yes
No
Yes Yes
Your education is qualifying
work-related education.
No
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You haven't necessarily met the minimum educa-
tional requirements of your trade or business sim-
ply because you are already doing the work.
Example 1. You are a full-time engineering student. Al-
though you haven't received your degree or certification,
you work part time as an engineer for a firm that will em-
ploy you as a full-time engineer after you finish college. Al-
though your college engineering courses improve your
skills in your present job, they are also needed to meet the
minimum job requirements for a full-time engineer. The
education isn't qualifying work-related education.
Example 2. You are an accountant and you have met
the minimum educational requirements of your employer.
Your employer later changes the minimum educational re-
quirements and requires you to take college courses to
keep your job. These additional courses can be qualifying
work-related education because you have already satis-
fied the minimum requirements that were in effect when
you were hired.
Requirements for Teachers
States or school districts usually set the minimum educa-
tional requirements for teachers. The requirement is the
college degree or the minimum number of college hours
usually required of a person hired for that position.
If there are no requirements, you will have met the mini-
mum educational requirements when you become a fac-
ulty member. The determination of whether you are a fac-
ulty member of an educational institution must be made
on the basis of the particular practices of the institution.
You will generally be considered a faculty member when
one or more of the following occurs.
•
You have tenure.
•
Your years of service count toward obtaining tenure.
•
You have a vote in faculty decisions.
•
Your school makes contributions for you to a retire-
ment plan other than social security or a similar pro-
gram.
Example 1. The law in your state requires beginning
secondary school teachers to have a bachelor's degree,
including 10 professional education courses. In addition,
to keep the job, a teacher must complete a fifth year of
training within 10 years from the date of hire. If the em-
ploying school certifies to the state Department of Educa-
tion that qualified teachers can't be found, the school can
hire persons with only 3 years of college. However, to
keep their jobs, these teachers must get a bachelor's de-
gree and the required professional education courses
within 3 years.
Under these facts, the bachelor's degree, whether or
not it includes the 10 professional education courses, is
considered the minimum educational requirement for
qualification as a teacher in your state.
If you have all the required education except the fifth
year, you have met the minimum educational
CAUTION
!
requirements. The fifth year of training is qualifying
work-related education unless it is part of a program of
study that will qualify you for a new trade or business.
Example 2. Assume the same facts as in Example 1,
except that you have a bachelor's degree and only six pro-
fessional education courses. The additional four educa-
tion courses can be qualifying work-related education. Al-
though you don't have all the required courses, you have
already met the minimum educational requirements.
Example 3. Assume the same facts as in Example 1,
except that you are hired with only 3 years of college. The
courses you take that lead to a bachelor's degree (includ-
ing those in education) aren't qualifying work-related edu-
cation. They are needed to meet the minimum educational
requirements for employment as a teacher.
Example 4. You have a bachelor's degree and you
work as a temporary instructor at a university. At the same
time, you take graduate courses toward an advanced de-
gree. The rules of the university state that you can be-
come a faculty member only if you get a graduate degree.
Also, you can keep your job as an instructor only as long
as you show satisfactory progress toward getting this de-
gree. You haven't met the minimum educational require-
ments to qualify you as a faculty member. The graduate
courses aren't qualifying work-related education.
Certification in a new state. Once you have met the
minimum educational requirements for teachers for your
state, you are considered to have met the minimum edu-
cational requirements in all states. This is true even if you
must get additional education to be certified in another
state. Any additional education you need is qualifying
work-related education. You have already met the mini-
mum requirements for teaching. Teaching in another state
isn't a new trade or business.
Example. You hold a permanent teaching certificate in
State A and are employed as a teacher in that state for
several years. You move to State B and are promptly hired
as a teacher. You are required, however, to complete cer-
tain prescribed courses to get a permanent teaching cer-
tificate in State B. These additional courses are qualifying
work-related education because the teaching position in
State B involves the same general kind of work for which
you were qualified in State A.
Education That Qualifies You for a
New Trade or Business
Education that is part of a program of study that will qualify
you for a new trade or business isn't qualifying work-rela-
ted education. This is true even if you don't plan to enter
that trade or business.
If you are an employee, a change of duties that involves
the same general kind of work isn't a new trade or busi-
ness.
Example 1. You are an accountant. Your employer re-
quires you to get a law degree at your own expense. You
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register at a law school for the regular curriculum that
leads to a law degree. Even if you don't intend to become
a lawyer, the education isn't qualifying because the law
degree will qualify you for a new trade or business.
Example 2. You are a general practitioner of medicine.
You take a 2-week course to review developments in sev-
eral specialized fields of medicine. The course doesn't
qualify you for a new profession. It is qualifying work-rela-
ted education because it maintains or improves skills re-
quired in your present profession.
Example 3. While working in the private practice of
psychiatry, you enter a program to study and train at an
accredited psychoanalytic institute. The program will lead
to qualifying you to practice psychoanalysis. The psycho-
analytic training doesn't qualify you for a new profession. It
is qualifying work-related education because it maintains
or improves skills required in your present profession.
Bar or CPA Review Course
Review courses to prepare for the bar examination or the
certified public accountant (CPA) examination aren't quali-
fying work-related education. They are part of a program
of study that can qualify you for a new profession.
Teaching and Related Duties
All teaching and related duties are considered the same
general kind of work. A change in duties in any of the fol-
lowing ways isn't considered a change to a new business.
•
Elementary school teacher to secondary school
teacher.
•
Teacher of one subject, such as biology, to teacher of
another subject, such as art.
•
Classroom teacher to guidance counselor.
•
Classroom teacher to school administrator.
What Expenses
Can Be Deducted?
If your education meets the requirements described earlier
under Qualifying Work-Related Education, you may be
able to deduct your education expenses as business ex-
penses. If you aren't self-employed, you can deduct busi-
ness expenses only if you are an Armed Forces reservist,
qualified performing artist, fee-based state or local gov-
ernment official, or, for impairment-related expenses, an
individual with a disability.
You can't deduct expenses related to tax-exempt and
excluded income.
Deductible expenses. The following education expen-
ses can be deducted.
•
Tuition, books, supplies, lab fees, and similar items.
•
Certain transportation and travel costs.
•
Other education expenses, such as costs of research
and typing when writing a paper as part of an educa-
tional program.
Nondeductible expenses. You can't deduct personal or
capital expenses. For example, you can't deduct the dollar
value of vacation time or annual leave you take to attend
classes. This amount is a personal expense.
Unclaimed reimbursement. If you don't claim reim-
bursement that you are entitled to receive from your em-
ployer, you can't deduct the expenses that apply to that
unclaimed reimbursement.
Example. Your employer agrees to pay your education
expenses if you file a voucher showing your expenses.
You don't file a voucher and you don't get reimbursed. Be-
cause you didn't file a voucher, you can't deduct the ex-
penses on your tax return.
Transportation Expenses
If your education qualifies, you can deduct local transpor-
tation costs of going directly from work to school. If you
are regularly employed and go to school on a temporary
basis, you can also deduct the costs of returning from
school to home.
Temporary basis. You go to school on a temporary basis
if either of the following situations applies to you.
1. Your attendance at school is realistically expected to
last 1 year or less and does indeed last for 1 year or
less.
2. Initially, your attendance at school is realistically ex-
pected to last 1 year or less, but at a later date your
attendance is reasonably expected to last more than
1 year. Your attendance is temporary up to the date
you determine it will last more than 1 year.
If you are in either situation (1) or (2), your attendance isn't
temporary if facts and circumstances indicate otherwise.
Attendance not on a temporary basis. You don't go
to school on a temporary basis if either of the following sit-
uations applies to you.
1. Your attendance at school is realistically expected to
last more than 1 year. It doesn't matter how long you
actually attend.
2. Initially, your attendance at school is realistically ex-
pected to last 1 year or less, but at a later date your
attendance is reasonably expected to last more than
1 year. Your attendance isn't temporary after the date
you determine it will last more than 1 year.
Deductible Transportation Expenses
If you are regularly employed and go directly from home to
school on a temporary basis, you can deduct the roundtrip
costs of transportation between your home and school.
This is true regardless of the location of the school, the
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distance traveled, or whether you attend school on non-
work days.
Transportation expenses include the actual costs of
bus, subway, cab, or other fares, as well as the costs of
using your car. Transportation expenses don't include
amounts spent for travel, meals, or lodging while you are
away from home overnight.
Example 1. You regularly work in a nearby town, and
go directly from work to home. You also attend school ev-
ery work night for 3 months to take a course that improves
your job skills. Since you are attending school on a tempo-
rary basis, you can deduct your daily roundtrip transporta-
tion expenses in going between home and school. This is
true regardless of the distance traveled.
Example 2. Assume the same facts as in Example 1,
except that on certain nights you go directly from work to
school and then home. You can deduct your transportation
expenses from your regular work site to school and then
home.
Example 3. Assume the same facts as in Example 1,
except that you attend the school for 9 months on Satur-
days, nonwork days. Since you are attending school on a
temporary basis, you can deduct your roundtrip transpor-
tation expenses in going between home and school.
Example 4. Assume the same facts as in Example 1,
except that you attend classes twice a week for 15
months. Since your attendance in school isn't considered
temporary, you can't deduct your transportation expenses
in going between home and school. If you go directly from
work to school, you can deduct the one-way transportation
expenses of going from work to school. If you go from
work to home to school and return home, your transporta-
tion expenses can't be more than if you had gone directly
from work to school.
Using your car. If you use your car (whether you own or
lease it) for transportation to school, you can deduct your
actual expenses or use the standard mileage rate to figure
the amount you can deduct. The standard mileage rate for
miles driven from January 1, 2023, through December 31,
2023, is 65.5 cents a mile. Whichever method you use,
you can also deduct parking fees and tolls. See Pub. 463,
chapter 4, for information on deducting your actual expen-
ses of using a car.
Travel Expenses
You can deduct expenses for travel, meals (see 50% limit
on meals, later), and lodging if you travel overnight mainly
to obtain qualifying work-related education.
Travel expenses for qualifying work-related education
are treated the same as travel expenses for other em-
ployee business purposes. For more information, see
chapter 1 of Pub. 463.
You can't deduct expenses for personal activities
such as sightseeing, visiting, or entertaining.
Mainly personal travel. If your travel away from home is
mainly personal, you can't deduct all of your expenses for
travel, meals, and lodging. You can deduct only your ex-
penses for lodging and meals (see 50% limit on meals,
later) during the time you attend the qualified educational
activities.
Whether a trip's purpose is mainly personal or educa-
tional depends upon the facts and circumstances. An im-
portant factor is the comparison of time spent on personal
activities with time spent on educational activities. If you
spend more time on personal activities, the trip is consid-
ered mainly educational only if you can show a substantial
nonpersonal reason for traveling to a particular location.
Example 1. You work in Newark, New Jersey. You trav-
eled to Chicago to take a deductible 1-week course at the
request of your employer. Your main reason for going to
Chicago was to take the course.
While there, you took a sightseeing trip, entertained
some friends, and took a side trip to Pleasantville for a
day.
Since the trip was mainly for business, you can deduct
your roundtrip airfare to Chicago. You can't deduct your
transportation expenses of going to Pleasantville. You can
deduct only the meals (see 50% limit on meals, later) and
lodging connected with your educational activities.
Example 2. You work in Boston. You went to a univer-
sity in Michigan to take a course for work. The course is
qualifying work-related education.
You took one course, which is one-fourth of a full
course load of study. You spent the rest of the time on per-
sonal activities. Your reasons for taking the course in
Michigan were all personal.
Your trip is mainly personal because three-fourths of
your time is considered personal time. You can't deduct
the cost of your roundtrip train ticket to Michigan. You can
deduct one-fourth of the meals (see 50% limit on meals,
later) and lodging costs for the time you attended the uni-
versity.
Example 3. You work in Nashville and recently trav-
eled to California to take a 2-week seminar. The seminar
is qualifying work-related education.
While there, you spent an extra 8 weeks on personal
activities. The facts, including the extra 8-week stay, show
that your main purpose was to take a vacation.
You can't deduct your roundtrip airfare or your meals
and lodging for the 8 weeks. You can deduct only your ex-
penses for meals (see 50% limit on meals, later) and lodg-
ing for the 2 weeks you attended the seminar.
Cruises and conventions. Certain cruises and conven-
tions offer seminars or courses as part of their itinerary.
Even if the seminars or courses are work related, your de-
duction for travel may be limited. This applies to:
•
Travel by ocean liner, cruise ship, or other form of
luxury water transportation; and
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•
Conventions outside the North American area.
For a discussion of the limits on travel expense deduc-
tions that apply to cruises and conventions, see Luxury
Water Travel and Conventions in chapter 1 of Pub. 463.
50% limit on meals. You can deduct only 50% of the
cost of your meals while traveling away from home to ob-
tain qualifying work-related education. If you were reim-
bursed for the meals, see How To Treat Reimbursements,
later.
Qualified performing artists and fee-based state or local
government officials must use Form 2106 to apply the
50% limit.
Travel as Education
You can't deduct the cost of travel as a form of education
even if it is directly related to your duties in your work or
business.
Example. You are a French language teacher. While
on sabbatical leave granted for travel, you traveled
through France to improve your knowledge of the French
language. You chose your itinerary and most of your activi-
ties to improve your French language skills. You can't de-
duct your travel expenses as education expenses. This is
true even if you spent most of your time learning French by
visiting French schools and families, attending movies or
plays, and engaging in similar activities.
No Double Benefit Allowed
You can't do the following.
•
Deduct work-related education expenses as business
expenses if you benefit from these expenses under
any other provision of the law.
•
Deduct work-related education expenses paid with
tax-free scholarship, grant, or employer-provided edu-
cational assistance.
Adjustments to Qualifying Work-Related
Education Expenses
If you pay qualifying work-related education expenses with
certain tax-free funds, you can't claim a deduction for
those amounts. You must reduce the qualifying expenses
by the amount of such expenses allocable to the tax-free
educational assistance.
Tax-free educational assistance. This includes:
•
The tax-free part of scholarships and fellowship grants
(see Tax-Free Scholarships and Fellowship Grants in
chapter 1);
•
The tax-free part of Pell grants (see Pell Grants and
Other Title IV Need-Based Education Grants in chap-
ter 1);
•
Employer-provided educational assistance (see chap-
ter 10);
•
Veterans' educational assistance (see Veterans' Bene-
fits in chapter 1); and
•
Any other nontaxable (tax-free) payments (other than
gifts or inheritances) received as educational assis-
tance.
Amounts that don't reduce qualifying work-related
education expenses. Don't reduce the qualifying
work-related education expenses by amounts paid with
funds the student receives as:
•
Payment for services, such as wages;
•
A loan;
•
A gift;
•
An inheritance; or
•
A withdrawal from the student's personal savings.
Also, don't reduce the qualifying work-related education
expenses by any scholarship or fellowship grant reported
as income on the student's return or any scholarship that,
by its terms, can't be applied to qualifying work-related ed-
ucation expenses.
How To Treat Reimbursements
How you treat reimbursements depends on the arrange-
ment you have with your employer.
There are two basic types of reimbursement arrange-
ments—accountable plans and nonaccountable plans.
You can tell the type of plan you are reimbursed under by
the way the reimbursement is reported on your Form W-2.
Note. The following rules about reimbursement ar-
rangements also apply to expense allowances received
from your employer.
Accountable Plans
To be an accountable plan, your employer's reimburse-
ment arrangement must require you to meet all three of
the following rules.
•
Your expenses must have a business connection. This
means your expenses must be allowed under the
rules for qualifying work-related education explained
earlier.
•
You must adequately account to your employer for
your expenses within a reasonable period of time.
•
You must return any reimbursement or allowance in
excess of the expenses accounted for within a reason-
able period of time.
If you are reimbursed under an accountable plan, your
employer shouldn't include any reimbursement of income
on your Form W-2, box 1.
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If your employer included reimbursements on your
Form W-2, box 1, and you meet all three rules for
accountable plans, ask your employer for a cor-
rected Form W-2.
Accountable plan rules not met. Even though you are
reimbursed under an accountable plan, some of your ex-
penses may not meet all three rules for accountable plans.
Those expenses that fail to meet the three rules are trea-
ted as having been reimbursed under a Nonaccountable
Plan (discussed later).
Expenses equal reimbursement. Under an accounta-
ble plan, if your expenses equal your reimbursement, you
don't complete Form 2106. Because your expenses and
reimbursements are equal, you don't have unreimbursed
work-related education expenses.
Excess expenses. If your expenses are more than your
reimbursement, you generally cannot deduct your excess
expenses. See Deducting Business Expenses, later.
Allocating your reimbursements for meals. Be-
cause your excess meal expenses are subject to the 50%
limit, you must figure them separately from your other ex-
penses. If your employer paid you a single amount to
cover both meals and other expenses, you must allocate
the reimbursement so that you can figure your excess
meal expenses separately. Make the allocation as follows.
1. Divide your meal expenses by your total expenses.
2. Multiply your total reimbursement by the result from
(1). This is the allocated reimbursement for your meal
expenses.
3. Subtract the amount figured in (2) from your total re-
imbursement. The difference is the allocated reim-
bursement for your other expenses of qualifying
work-related education.
Example. You are a qualified performing artist and one
of your employers paid you an expense allowance of
$2,000 under an accountable plan. The allowance was to
cover all of your expenses of traveling away from home to
take a 2-week training course for work. There was no indi-
cation of how much of the reimbursement was for each
type of expense. Your actual expenses equal $2,500
($425 for meals + $700 lodging + $150 transportation ex-
penses + $1,225 for books and tuition).
Using the steps listed above, allocate the reimburse-
ment between the $425 meal expenses and the $2,075
other expenses.
.
1. $425 meal expenses
= 0.17
$2,500 total
expenses
. .
2. $2,000 (reimbursement) × 0.17
= $340 (allocated reimbursement for meal expenses)
TIP
. . .
3. $2,000 (reimbursement) − $340 (meals)
= $1,660 (allocated reimbursement for other qualifying
work-related education expenses)
Your excess meal expenses are $85 ($425 − $340) and
your excess other expenses are $415 ($2,075 − $1,660).
After you apply the 50% limit to your meals, you can de-
duct your excess work-related education expenses of
$458 (($85 × 50%) + $415). See Deducting Business Ex-
penses, later.
Nonaccountable Plans
Your employer will combine the amount of any reimburse-
ment or other expense allowance paid to you under a non-
accountable plan with your wages, salary, or other pay
and report the total on your Form W-2, box 1.
You generally cannot deduct your expenses regardless
of whether they are more than, less than, or equal to your
reimbursement. See Deducting Business Expenses, later.
Reimbursements for nondeductible expenses. Reim-
bursements you received for nondeductible expenses are
treated as paid under a nonaccountable plan. You must in-
clude them in your income. For example, you must include
in your income reimbursements your employer gave you
for expenses of education that:
•
You need to meet the minimum educational require-
ments for your job, or
•
Is part of a program of study that can qualify you for a
new trade or business.
For more information on accountable and nonaccount-
able plans, see chapter 6 of Pub. 463.
Deducting Business Expenses
Self-employed persons and employees report their busi-
ness expenses differently.
The following information explains what forms you must
use to deduct the cost of your qualifying work-related edu-
cation as a business expense.
Self-Employed Persons
If you are self-employed, you must report the cost of your
qualifying work-related education on the appropriate form
used to report your business income and expenses (gen-
erally, Schedule C (Form 1040), or Schedule F (Form
1040)). If your education expenses include expenses for a
car or truck, travel, or meals, report those expenses the
same way you report other business expenses for those
items. See the instructions for the form you file for informa-
tion on how to complete it.
Publication 970 (2023) Chapter 11 Business Deduction for Work-Related
Education
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Armed Forces Reservists, Performing
Artists, and Fee-Basis Officials
If you are an Armed Forces reservist, a qualified perform-
ing artist, or a state (or local) government official who is
paid in whole or in part on a fee basis, you can deduct the
cost of your qualifying work-related education as an ad-
justment to gross income.
Include the cost of your qualifying work-related educa-
tion with any other employee business expenses on
Schedule 1 (Form 1040), line 12. You must complete Form
2106 to figure your deduction.
For more information on qualified performing artists,
see chapter 6 of Pub. 463.
Impairment-Related Work Expenses
If you are an individual with a disability and have impair-
ment-related work expenses that are necessary for you to
be able to get qualifying work-related education, you can
deduct these expenses on Schedule A (Form 1040),
line 16, or Schedule A (Form 1040-NR), line 7. To deduct
these expenses, you must complete Form 2106.
For more information on impairment-related work ex-
penses, see chapter 6 of Pub. 463.
Recordkeeping
You must keep records as proof of any deduction
claimed on your tax return. Generally, you should
keep your records for 3 years from the date of fil-
ing the tax return and claiming the deduction.
If you are an employee who is reimbursed for expenses
and you give your records and documentation to your em-
ployer, you don't have to keep duplicate copies of this in-
formation. However, you should keep your records for a
3-year period if:
•
You claim deductions for expenses that are more than
your reimbursement,
•
Your employer doesn't use adequate accounting pro-
cedures to verify expense accounts,
•
You are related to your employer, or
•
Your expenses are reimbursed under a nonaccounta-
ble plan.
Examples of records to keep. If any of the above cases
apply to you, you must be able to prove that your expen-
ses are deductible. You should keep adequate records or
have sufficient evidence that will support your expenses.
Estimates or approximations don't qualify as proof of an
expense. Some examples of what can be used to help
prove your expenses are the following.
1. Documents, such as transcripts, course descriptions,
catalogs, etc., showing periods of enrollment in edu-
cational institutions, principal subjects studied, and
descriptions of educational activity.
RECORDS
2. Canceled checks and receipts to verify amounts you
spent for:
a. Tuition and books,
b. Meals and lodging while away from home over-
night for educational purposes,
c. Travel and transportation, and
d. Other education expenses.
3. Statements from your employer explaining whether
the education was necessary for you to keep your job,
salary, or status; how the education helped maintain
or improve skills needed in your job; how much reim-
bursement you received; and, if you are a teacher, the
type of certificate and subjects taught.
4. Complete information about any scholarship or fellow-
ship grants, including amounts you received during
the year.
12.
How To Get Tax Help
If you have questions about a tax issue; need help prepar-
ing your tax return; or want to download free publications,
forms, or instructions, go to IRS.gov to find resources that
can help you right away.
Preparing and filing your tax return. After receiving all
your wage and earnings statements (Forms W-2, W-2G,
1099-R, 1099-MISC, 1099-NEC, etc.); unemployment
compensation statements (by mail or in a digital format) or
other government payment statements (Form 1099-G);
and interest, dividend, and retirement statements from
banks and investment firms (Forms 1099), you have sev-
eral options to choose from to prepare and file your tax re-
turn. You can prepare the tax return yourself, see if you
qualify for free tax preparation, or hire a tax professional to
prepare your return.
Free options for tax preparation. Your options for pre-
paring and filing your return online or in your local com-
munity, if you qualify, include the following.
•
Free File. This program lets you prepare and file your
federal individual income tax return for free using soft-
ware or Free File Fillable Forms. However, state tax
preparation may not be available through Free File. Go
to IRS.gov/FreeFile to see if you qualify for free online
federal tax preparation, e-filing, and direct deposit or
payment options.
•
VITA. The Volunteer Income Tax Assistance (VITA)
program offers free tax help to people with
low-to-moderate incomes, persons with disabilities,
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and limited-English-speaking taxpayers who need
help preparing their own tax returns. Go to IRS.gov/
VITA, download the free IRS2Go app, or call
800-906-9887 for information on free tax return prepa-
ration.
•
TCE. The Tax Counseling for the Elderly (TCE) pro-
gram offers free tax help for all taxpayers, particularly
those who are 60 years of age and older. TCE volun-
teers specialize in answering questions about pen-
sions and retirement-related issues unique to seniors.
Go to IRS.gov/TCE or download the free IRS2Go app
for information on free tax return preparation.
•
MilTax. Members of the U.S. Armed Forces and quali-
fied veterans may use MilTax, a free tax service of-
fered by the Department of Defense through Military
OneSource. For more information, go to
MilitaryOneSource (MilitaryOneSource.mil/MilTax).
Also, the IRS offers Free Fillable Forms, which can
be completed online and then e-filed regardless of in-
come.
Using online tools to help prepare your return. Go to
IRS.gov/Tools for the following.
•
The Earned Income Tax Credit Assistant (IRS.gov/
EITCAssistant) determines if you’re eligible for the
earned income credit (EIC).
•
The Online EIN Application (IRS.gov/EIN) helps you
get an employer identification number (EIN) at no
cost.
•
The Tax Withholding Estimator (IRS.gov/W4App)
makes it easier for you to estimate the federal income
tax you want your employer to withhold from your pay-
check. This is tax withholding. See how your withhold-
ing affects your refund, take-home pay, or tax due.
•
The First-Time Homebuyer Credit Account Look-up
(IRS.gov/HomeBuyer) tool provides information on
your repayments and account balance.
•
The Sales Tax Deduction Calculator (IRS.gov/
SalesTax) figures the amount you can claim if you
itemize deductions on Schedule A (Form 1040).
Getting answers to your tax questions. On
IRS.gov, you can get up-to-date information on
current events and changes in tax law.
•
IRS.gov/Help: A variety of tools to help you get an-
swers to some of the most common tax questions.
•
IRS.gov/ITA: The Interactive Tax Assistant, a tool that
will ask you questions and, based on your input, pro-
vide answers on a number of tax topics.
•
IRS.gov/Forms: Find forms, instructions, and publica-
tions. You will find details on the most recent tax
changes and interactive links to help you find answers
to your questions.
•
You may also be able to access tax information in your
e-filing software.
Need someone to prepare your tax return? There are
various types of tax return preparers, including enrolled
agents, certified public accountants (CPAs), accountants,
and many others who don’t have professional credentials.
If you choose to have someone prepare your tax return,
choose that preparer wisely. A paid tax preparer is:
•
Primarily responsible for the overall substantive accu-
racy of your return,
•
Required to sign the return, and
•
Required to include their preparer tax identification
number (PTIN).
Although the tax preparer always signs the return,
you're ultimately responsible for providing all the
information required for the preparer to accurately
prepare your return and for the accuracy of every item re-
ported on the return. Anyone paid to prepare tax returns
for others should have a thorough understanding of tax
matters. For more information on how to choose a tax pre-
parer, go to Tips for Choosing a Tax Preparer on IRS.gov.
Employers can register to use Business Services On-
line. The Social Security Administration (SSA) offers on-
line service at SSA.gov/employer for fast, free, and secure
W-2 filing options to CPAs, accountants, enrolled agents,
and individuals who process Form W-2, Wage and Tax
Statement, and Form W-2c, Corrected Wage and Tax
Statement.
IRS social media. Go to IRS.gov/SocialMedia to see the
various social media tools the IRS uses to share the latest
information on tax changes, scam alerts, initiatives, prod-
ucts, and services. At the IRS, privacy and security are our
highest priority. We use these tools to share public infor-
mation with you. Don’t post your social security number
(SSN) or other confidential information on social media
sites. Always protect your identity when using any social
networking site.
The following IRS YouTube channels provide short, infor-
mative videos on various tax-related topics in English,
Spanish, and ASL.
•
Youtube.com/irsvideos.
•
Youtube.com/irsvideosmultilingua.
•
Youtube.com/irsvideosASL.
Watching IRS videos. The IRS Video portal
(IRSVideos.gov) contains video and audio presentations
for individuals, small businesses, and tax professionals.
Online tax information in other languages. You can
find information on IRS.gov/MyLanguage if English isn’t
your native language.
Free Over-the-Phone Interpreter (OPI) Service. The
IRS is committed to serving taxpayers with limited-English
proficiency (LEP) by offering OPI services. The OPI Serv-
ice is a federally funded program and is available at Tax-
payer Assistance Centers (TACs), most IRS offices, and
every VITA/TCE tax return site. The OPI Service is
accessible in more than 350 languages.
CAUTION
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Accessibility Helpline available for taxpayers with
disabilities. Taxpayers who need information about ac-
cessibility services can call 833-690-0598. The Accessi-
bility Helpline can answer questions related to current and
future accessibility products and services available in al-
ternative media formats (for example, braille, large print,
audio, etc.). The Accessibility Helpline does not have ac-
cess to your IRS account. For help with tax law, refunds, or
account-related issues, go to IRS.gov/LetUsHelp.
Note. Form 9000, Alternative Media Preference, or
Form 9000(SP) allows you to elect to receive certain types
of written correspondence in the following formats.
•
Standard Print.
•
Large Print.
•
Braille.
•
Audio (MP3).
•
Plain Text File (TXT).
•
Braille Ready File (BRF).
Disasters. Go to IRS.gov/DisasterRelief to review the
available disaster tax relief.
Getting tax forms and publications. Go to IRS.gov/
Forms to view, download, or print all the forms, instruc-
tions, and publications you may need. Or, you can go to
IRS.gov/OrderForms to place an order.
Getting tax publications and instructions in eBook
format. Download and view most tax publications and in-
structions (including the Instructions for Form 1040) on
mobile devices as eBooks at IRS.gov/eBooks.
IRS eBooks have been tested using Apple's iBooks for
iPad. Our eBooks haven’t been tested on other dedicated
eBook readers, and eBook functionality may not operate
as intended.
Access your online account (individual taxpayers
only). Go to IRS.gov/Account to securely access infor-
mation about your federal tax account.
•
View the amount you owe and a breakdown by tax
year.
•
See payment plan details or apply for a new payment
plan.
•
Make a payment or view 5 years of payment history
and any pending or scheduled payments.
•
Access your tax records, including key data from your
most recent tax return, and transcripts.
•
View digital copies of select notices from the IRS.
•
Approve or reject authorization requests from tax pro-
fessionals.
•
View your address on file or manage your communica-
tion preferences.
Get a transcript of your return. With an online account,
you can access a variety of information to help you during
the filing season. You can get a transcript, review your
most recently filed tax return, and get your adjusted gross
income. Create or access your online account at IRS.gov/
Account.
Tax Pro Account. This tool lets your tax professional
submit an authorization request to access your individual
taxpayer IRS online account. For more information, go to
IRS.gov/TaxProAccount.
Using direct deposit. The safest and easiest way to re-
ceive a tax refund is to e-file and choose direct deposit,
which securely and electronically transfers your refund di-
rectly into your financial account. Direct deposit also
avoids the possibility that your check could be lost, stolen,
destroyed, or returned undeliverable to the IRS. Eight in
10 taxpayers use direct deposit to receive their refunds. If
you don’t have a bank account, go to IRS.gov/
DirectDeposit for more information on where to find a bank
or credit union that can open an account online.
Reporting and resolving your tax-related identity
theft issues.
•
Tax-related identity theft happens when someone
steals your personal information to commit tax fraud.
Your taxes can be affected if your SSN is used to file a
fraudulent return or to claim a refund or credit.
•
The IRS doesn’t initiate contact with taxpayers by
email, text messages (including shortened links), tele-
phone calls, or social media channels to request or
verify personal or financial information. This includes
requests for personal identification numbers (PINs),
passwords, or similar information for credit cards,
banks, or other financial accounts.
•
Go to IRS.gov/IdentityTheft, the IRS Identity Theft
Central webpage, for information on identity theft and
data security protection for taxpayers, tax professio-
nals, and businesses. If your SSN has been lost or
stolen or you suspect you’re a victim of tax-related
identity theft, you can learn what steps you should
take.
•
Get an Identity Protection PIN (IP PIN). IP PINs are
six-digit numbers assigned to taxpayers to help pre-
vent the misuse of their SSNs on fraudulent federal in-
come tax returns. When you have an IP PIN, it pre-
vents someone else from filing a tax return with your
SSN. To learn more, go to IRS.gov/IPPIN.
Ways to check on the status of your refund.
•
Go to IRS.gov/Refunds.
•
Download the official IRS2Go app to your mobile de-
vice to check your refund status.
•
Call the automated refund hotline at 800-829-1954.
The IRS can’t issue refunds before mid-February
for returns that claimed the EIC or the additional
child tax credit (ACTC). This applies to the entire
refund, not just the portion associated with these credits.
Making a tax payment. Payments of U.S. tax must be
remitted to the IRS in U.S. dollars. Digital assets are not
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accepted. Go to IRS.gov/Payments for information on how
to make a payment using any of the following options.
•
IRS Direct Pay: Pay your individual tax bill or estimated
tax payment directly from your checking or savings ac-
count at no cost to you.
•
Debit Card, Credit Card, or Digital Wallet: Choose an
approved payment processor to pay online or by
phone.
•
Electronic Funds Withdrawal: Schedule a payment
when filing your federal taxes using tax return prepara-
tion software or through a tax professional.
•
Electronic Federal Tax Payment System: Best option
for businesses. Enrollment is required.
•
Check or Money Order: Mail your payment to the ad-
dress listed on the notice or instructions.
•
Cash: You may be able to pay your taxes with cash at
a participating retail store.
•
Same-Day Wire: You may be able to do same-day
wire from your financial institution. Contact your finan-
cial institution for availability, cost, and time frames.
Note. The IRS uses the latest encryption technology to
ensure that the electronic payments you make online, by
phone, or from a mobile device using the IRS2Go app are
safe and secure. Paying electronically is quick, easy, and
faster than mailing in a check or money order.
What if I can’t pay now? Go to IRS.gov/Payments for
more information about your options.
•
Apply for an online payment agreement (IRS.gov/
OPA) to meet your tax obligation in monthly install-
ments if you can’t pay your taxes in full today. Once
you complete the online process, you will receive im-
mediate notification of whether your agreement has
been approved.
•
Use the Offer in Compromise Pre-Qualifier to see if
you can settle your tax debt for less than the full
amount you owe. For more information on the Offer in
Compromise program, go to IRS.gov/OIC.
Filing an amended return. Go to IRS.gov/Form1040X
for information and updates.
Checking the status of your amended return. Go to
IRS.gov/WMAR to track the status of Form 1040-X amen-
ded returns.
It can take up to 3 weeks from the date you filed
your amended return for it to show up in our sys-
tem, and processing it can take up to 16 weeks.
Understanding an IRS notice or letter you’ve re-
ceived. Go to IRS.gov/Notices to find additional informa-
tion about responding to an IRS notice or letter.
Responding to an IRS notice or letter. You can now
upload responses to all notices and letters using the
Document Upload Tool. For notices that require additional
action, taxpayers will be redirected appropriately on
CAUTION
!
IRS.gov to take further action. To learn more about the
tool, go to IRS.gov/Upload.
Note. You can use Schedule LEP (Form 1040), Re-
quest for Change in Language Preference, to state a pref-
erence to receive notices, letters, or other written commu-
nications from the IRS in an alternative language. You may
not immediately receive written communications in the re-
quested language. The IRS’s commitment to LEP taxpay-
ers is part of a multi-year timeline that began providing
translations in 2023. You will continue to receive communi-
cations, including notices and letters, in English until they
are translated to your preferred language.
Contacting your local TAC. Keep in mind, many ques-
tions can be answered on IRS.gov without visiting a TAC.
Go to IRS.gov/LetUsHelp for the topics people ask about
most. If you still need help, TACs provide tax help when a
tax issue can’t be handled online or by phone. All TACs
now provide service by appointment, so you’ll know in ad-
vance that you can get the service you need without long
wait times. Before you visit, go to IRS.gov/TACLocator to
find the nearest TAC and to check hours, available serv-
ices, and appointment options. Or, on the IRS2Go app,
under the Stay Connected tab, choose the Contact Us op-
tion and click on “Local Offices.”
The Taxpayer Advocate
Service (TAS) Is Here To Help
You
What Is TAS?
TAS is an independent organization within the IRS that
helps taxpayers and protects taxpayer rights. TAS strives
to ensure that every taxpayer is treated fairly and that you
know and understand your rights under the Taxpayer Bill
of Rights.
How Can You Learn About Your Taxpayer
Rights?
The Taxpayer Bill of Rights describes 10 basic rights that
all taxpayers have when dealing with the IRS. Go to
TaxpayerAdvocate.IRS.gov to help you understand what
these rights mean to you and how they apply. These are
your rights. Know them. Use them.
What Can TAS Do for You?
TAS can help you resolve problems that you can’t resolve
with the IRS. And their service is free. If you qualify for
their assistance, you will be assigned to one advocate
who will work with you throughout the process and will do
everything possible to resolve your issue. TAS can help
you if:
•
Your problem is causing financial difficulty for you,
your family, or your business;
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•
You face (or your business is facing) an immediate
threat of adverse action; or
•
You’ve tried repeatedly to contact the IRS but no one
has responded, or the IRS hasn’t responded by the
date promised.
How Can You Reach TAS?
TAS has offices in every state, the District of Columbia,
and Puerto Rico. To find your local advocate’s number:
•
Go to TaxpayerAdvocate.IRS.gov/Contact-Us;
•
Download Pub. 1546, The Taxpayer Advocate Service
Is Your Voice at the IRS, available at IRS.gov/pub/irs-
pdf/p1546.pdf;
•
Call the IRS toll free at 800-TAX-FORM
(800-829-3676) to order a copy of Pub. 1546;
•
Check your local directory; or
•
Call TAS toll free at 877-777-4778.
How Else Does TAS Help Taxpayers?
TAS works to resolve large-scale problems that affect
many taxpayers. If you know of one of these broad issues,
report it to TAS at IRS.gov/SAMS. Be sure to not include
any personal taxpayer information.
Low Income Taxpayer Clinics (LITCs)
LITCs are independent from the IRS and TAS. LITCs rep-
resent individuals whose income is below a certain level
and who need to resolve tax problems with the IRS. LITCs
can represent taxpayers in audits, appeals, and tax collec-
tion disputes before the IRS and in court. In addition,
LITCs can provide information about taxpayer rights and
responsibilities in different languages for individuals who
speak English as a second language. Services are offered
for free or a small fee. For more information or to find an
LITC near you, go to the LITC page at
TaxpayerAdvocate.IRS.gov/LITC or see IRS Pub. 4134,
Low Income Taxpayer Clinic List, at IRS.gov/pub/irs-pdf/
p4134.pdf.
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Appendix
The following appendix is provided to
help you claim the education benefits
that will give you the lowest tax. It con-
sists of a chart summarizing some of
the major differences between the edu-
cation tax benefits discussed in this
publication. It is intended only as a
guide. Look in this publication for more
complete information.
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Highlights of Education Tax Benefits for Tax Year 2023
This chart highlights some differences among the benefits discussed in this publication. See the text for definitions and details. Don't rely on this chart
alone.
Caution: You generally can't claim more than one benefit for the same education expense.
Scholarships,
Fellowship
Grants,
Grants, and
Tuition
Reductions
American
Opportunity
Credit
Lifetime
Learning Credit
Student Loan
Interest
Deduction Coverdell ESA
†
Qualified
Tuition Program
(QTP)
†
Education
Exception to
Additional Tax on
Early IRA
Distributions
†
Education
Savings Bond
Program
†
Employer-
Provided
Educational
Assistance
†
Business
Deduction
for
Work-Related
Education
What is your
benefit?
Amounts
received may not
be taxable
Credits can
reduce the
amount of tax
you must pay.
40% of the credit
may be
refundable
(limited to
$1,000 per
student).
Credits can
reduce the
amount of tax
you must pay
Can deduct
interest paid
Earnings not
taxed
Earnings not
taxed
No 10%
additional tax on
early distribution
Interest not taxed Employer
benefits not
taxed
Individuals
who are self-
employed,
Armed Forces
reservists,
qualified
performing
artists, fee-
based
officials, or
disabled can
deduct certain
expenses
What is the
annual limit?
None $2,500 credit per
student
$2,000 credit
per tax return
$2,500 deduction $2,000
contribution per
beneficiary
None Amount of qualified
education
expenses
Amount of qualified
education
expenses
$5,250 exclusion Amount of
qualifying
work-related
education
expenses
What
expenses
qualify
besides
tuition and
required
enrollment
fees?
Course-related
expenses such
as fees, books,
supplies, and
equipment
Course-related
books, supplies,
and equipment
Amounts paid
for required
books, etc., that
must be paid to
the educational
institution are
required fees
Books
Supplies
Equipment
Room & board
Transportation
Other necessary
expenses
Books
Supplies
Equipment
Computer
equipment,
computer
software, or
Internet access
and related
services
Expenses for
special needs
services
Payments to QTP
Higher education:
Room & board if
at least half-time
student
Elem/sec (K–12)
education: See
chapter 6
Higher education:
Books
Supplies
Equipment
Computer
equipment,
computer
software, or
Internet access
and related
services
Expenses for
special needs
services
Room & board if
at least half-time
student
Elem/sec (K–12)
education: See
chapter 7
Books
Supplies
Equipment
Room & board if at
least half-time
student
Expenses for
special needs
services
Payments to
Coverdell ESA
Payments to QTP
Books
Supplies
Equipment
Transportation
Travel
Other
necessary
expenses
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Scholarships,
Fellowship
Grants,
Grants, and
Tuition
Reductions
American
Opportunity
Credit
Lifetime
Learning
Credit
Student Loan
Interest
Deduction Coverdell ESA
†
Qualified Tuition
Program (QTP)
†
Education
Exception to
Additional
Tax on Early
IRA
Distributions
†
Education
Savings Bond
Program
†
Employer-
Provided
Educational
Assistance
†
Business
Deduction for
Work-Related
Education
What education
qualifies?
Undergraduate &
graduate
K–12
Undergraduate
& graduate
Undergraduate
& graduate
Courses to
acquire or
improve job
skills
Undergraduate
& graduate
Undergraduate
& graduate
K–12
Undergraduate &
graduate
K–12 for no more
than $10,000 of
tuition
Undergraduate
& graduate
Undergraduate &
graduate
Undergraduate &
graduate
Required by
employer or law to
keep present job,
salary, status
Maintain or improve
job skills
What are some
of the other
conditions that
apply?
Must be in
degree or
vocational
program
Payment of tuition
and required fees
must be allowed
under the grant
Can be claimed
for only 4 tax
years
Must be enrolled
at least half-time
in degree
program
No felony drug
conviction(s)
Must not have
completed first 4
years of
postsecondary
education before
end of preceding
tax year
No other
conditions
Must have been
at least half-time
student in
degree program
Assets must be
distributed at
age 30 unless
special
needs
beneficiary
No other
conditions
No other
conditions
Applies only to
qualified series
EE bonds issued
after 1989 or
series I bonds
No other
conditions
Can't be to
meet minimum
educational
requirements of
present trade/
business
Can't qualify
you for new trade/
business
In what income
range do
benefits
phase out?
No phaseout $80,000 –
$90,000
$160,000 –
$180,000 for
joint returns
$80,000 –
$90,000
$160,000 –
$180,000 for
joint returns
$75,000 –
$90,000
$155,000 –
$185,000 for
joint returns
$95,000 –
$110,000
$190,000 –
$220,000 for
joint returns
No phaseout No phaseout $91,850 –
$106,850
$137,800 –
$167,800 for
joint returns
No phaseout No phaseout
†
Any nontaxable distribution is limited to the amount that doesn't exceed qualified education expenses.
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Glossary
The education benefits included in this
publication were enacted over many
years, leading to a number of common
terms being defined differently from
one benefit to the next. For example,
an eligible educational institution
means one thing when determining if
earnings from a Coverdell ESA aren't
taxable and something else when de-
termining if a scholarship or fellowship
grant isn't taxable.
For each term listed below that has
more than one definition, the definition
for each education benefit is listed.
Academic period: A semester, tri-
mester, quarter, or other period of
study (such as a summer school ses-
sion) as reasonably determined by an
educational institution. If an educa-
tional institution uses credit hours or
clock hours and doesn't have aca-
demic terms, each payment period can
be treated as an academic period.
Adjusted qualified education ex-
penses (AQEE): Qualified education
expenses (defined later) reduced by
any tax-free educational assistance,
such as a tax-free scholarship or em-
ployer-provided educational assis-
tance. They must also be reduced by
any qualified education expenses de-
ducted elsewhere on your return, used
to determine an education credit or
other benefit, or used to determine a
tax-free distribution. For information on
a specific benefit, see the appropriate
chapter in this publication.
Candidate for a degree: A student
who meets either of the following re-
quirements.
1. Attends a primary or secondary
school or pursues a degree at a
college or university.
2. Attends an accredited educational
institution that is authorized to pro-
vide:
a. A program that is acceptable
for full credit toward a bache-
lor's or higher degree, or
b. A program of training to pre-
pare students for gainful em-
ployment in a recognized occu-
pation.
Designated beneficiary: The indi-
vidual named in the document creating
the account/plan who is to receive the
benefit of the funds in the account/
plan.
Eligible educational institution:
1. American opportunity credit.
Any college, university, vocational
school, or other postsecondary ed-
ucational institution eligible to par-
ticipate in a student aid program
administered by the U.S. Depart-
ment of Education. It includes vir-
tually all accredited public, non-
profit, and proprietary (privately
owned profit-making) postsecon-
dary institutions.
2. Coverdell education savings ac-
count (ESA). Any college, univer-
sity, vocational school, or other
postsecondary educational institu-
tion eligible to participate in a stu-
dent aid program administered by
the U.S. Department of Education.
It includes virtually all accredited
public, nonprofit, and proprietary
(privately owned profit-making)
postsecondary institutions. Also in-
cluded is any public, private, or re-
ligious school that provides ele-
mentary or secondary education
(kindergarten through grade 12),
as determined under state law.
3. Education savings bond pro-
gram. Same as American opportu-
nity credit in this category.
4. IRA, early distributions from.
Same as American opportunity
credit in this category.
5. Lifetime learning credit. Same
as American opportunity credit in
this category.
6. Qualified tuition program (QTP).
Generally, same as Coverdell edu-
cation savings account (ESA) in
this category.
7. Scholarships and fellowship
grants. An institution that main-
tains a regular faculty and curricu-
lum and normally has a regularly
enrolled body of students in at-
tendance at the place where it car-
ries on its educational activities.
8. Student loan, cancellation of.
Same as Scholarships and fellow-
ship grants in this category.
9. Student loan interest deduc-
tion. Any college, university, voca-
tional school, or other postsecon-
dary educational institution eligible
to participate in a student aid pro-
gram administered by the U.S. De-
partment of Education. It includes
virtually all accredited public, non-
profit, and proprietary (privately
owned profit-making) postsecon-
dary institutions. Also included is
an institution that conducts an in-
ternship or residency program
leading to a degree or certificate
from an institution of higher educa-
tion, a hospital, or a health care fa-
cility that offers postgraduate train-
ing.
Eligible student:
1. American opportunity credit. A
student who meets all of the fol-
lowing requirements for the tax
year for which the credit is being
determined.
•
Didn't have expenses that
were used to figure an Ameri-
can opportunity credit in any 4
earlier tax years.
•
Hadn't completed the first 4
years of postsecondary educa-
tion (generally, the freshman
through senior years) in an
earlier tax year.
•
For at least one academic pe-
riod beginning in the tax year,
was enrolled at least half-time
in a program leading to a de-
gree, certificate, or other rec-
ognized educational credential
at an eligible educational insti-
tution.
•
Was free of any federal or state
felony conviction for possess-
ing or distributing a controlled
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substance as of the end of the
tax year.
2. Lifetime learning credit. A stu-
dent who is enrolled in one or more
courses at an eligible educational
institution.
3. Student loan interest deduc-
tion. A student who was enrolled
at least half-time in a program
leading to a postsecondary de-
gree, certificate, or other recog-
nized educational credential at an
eligible educational institution.
Half-time student: A student who is
enrolled for at least half the full-time
academic workload for the course of
study the student is pursuing, as deter-
mined under the standards of the
school where the student is enrolled.
Modified adjusted gross income
(MAGI):
1. American opportunity credit.
Adjusted gross income (AGI) as
figured on the federal income tax
return, modified by adding back
any:
•
Foreign earned income exclu-
sion,
•
Foreign housing exclusion,
•
Foreign housing deduction,
•
Exclusion of income by bona
fide residents of American Sa-
moa, and
•
Exclusion of income by bona
fide residents of Puerto Rico.
2. Coverdell education savings ac-
count (ESA). Same as American
opportunity credit in this category.
3. Education savings bond pro-
gram. AGI as figured on the fed-
eral income tax return without tak-
ing into account any savings bond
interest exclusion and modified by
adding back any:
•
Foreign earned income exclu-
sion,
•
Foreign housing exclusion,
•
Foreign housing deduction,
•
Exclusion of income by bona
fide residents of American Sa-
moa,
•
Exclusion of income by bona
fide residents of Puerto Rico,
•
Exclusion for adoption benefits
received under an employer's
adoption assistance program,
and
•
Deduction for student loan in-
terest.
4. Lifetime learning credit. Same
as American opportunity credit in
this category.
5. Student loan interest deduc-
tion. AGI as figured on the federal
income tax return without taking
into account any student loan inter-
est deduction, and modified by
adding back any:
•
Foreign earned income exclu-
sion,
•
Foreign housing exclusion,
•
Foreign housing deduction,
•
Exclusion of income by bona
fide residents of American Sa-
moa, and
•
Exclusion of income by bona
fide residents of Puerto Rico.
Phaseout: The amount of credit or
deduction allowed is reduced when the
MAGI is greater than a specified
amount of income.
Qualified education expenses: See
the pertinent chapter for specific items.
1. American opportunity credit.
Tuition and certain related expen-
ses (including student activity fees)
required for enrollment or attend-
ance at an eligible educational in-
stitution. Books, supplies, and
equipment needed for a course of
study are included even if not pur-
chased from the educational insti-
tution. Doesn't include expenses
for room and board. Doesn't in-
clude expenses for courses involv-
ing sports, games, or hobbies (in-
cluding noncredit courses) that
aren't part of the student's postse-
condary degree program.
2. Coverdell education savings ac-
count (ESA). Expenses related to
or required for enrollment or at-
tendance of the designated benefi-
ciary at an eligible elementary,
secondary, or postsecondary
school. Includes computer or pe-
ripheral equipment, computer soft-
ware, or Internet access and rela-
ted services. Many specialized
expenses included for K–12. Also
includes expenses for special
needs services and contributions
to a QTP.
3. Education savings bond pro-
gram. Tuition and fees required to
enroll at or attend an eligible edu-
cational institution. Also includes
contributions to a QTP or Coverdell
ESA. Doesn't include expenses for
room and board. Doesn't include
expenses for courses involving
sports, games, or hobbies that
aren't part of a degree or certifi-
cate-granting program.
4. IRA, early distributions from.
Tuition, fees, books, supplies, and
equipment required for enrollment
or attendance at an eligible educa-
tional institution, plus certain limi-
ted costs of room and board for
students who are enrolled at least
half-time. Also includes expenses
for special needs services incurred
by or for special needs students in
connection with their enrollment or
attendance.
5. Lifetime learning credit. Tuition
and certain related expenses re-
quired for enrollment or attend-
ance at an eligible educational in-
stitution. Student activity fees and
expenses for course-related
books, supplies, and equipment
are included only if the fees and
expenses must be paid to the insti-
tution as a condition of enrollment
or attendance. Doesn't include ex-
penses for room and board.
Doesn't include expenses for cour-
ses involving sports, games, or
hobbies (including noncredit cour-
ses) that aren't part of the stu-
dent's postsecondary degree pro-
gram, unless taken by the student
to acquire or improve job skills.
6. Qualified tuition program (QTP).
Tuition, fees, books, supplies, and
equipment required for enrollment
or attendance at an eligible higher
educational institution, plus certain
limited costs of room and board for
students who are enrolled at least
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half-time. Includes computer or pe-
ripheral equipment, computer soft-
ware, or Internet access and rela-
ted services. Also includes
expenses for special needs serv-
ices and computer access. Also,
for amounts paid from distributions
made after 2017, includes no more
than $10,000 of elementary and
secondary school (K–12) tuition in-
curred after 2017.
7. Scholarships and fellowship
grants. Expenses for tuition and
fees required to enroll at or attend
an eligible educational institution,
and course-related expenses,
such as fees, books, supplies, and
equipment that are required for the
courses at the eligible educational
institution. Course-related items
must be required of all students in
the course of instruction.
8. Student loan interest deduc-
tion. Total costs of attending an el-
igible educational institution, in-
cluding graduate school (however,
limitations may apply to the cost of
room and board allowed).
Recapture: To include as income on
your current year's return an amount al-
lowed as a deduction in a prior year. To
include as tax on your current year's re-
turn an amount allowed as a credit in a
prior year.
Rollover: A tax-free distribution to
you of cash or other assets from a
tax-favored plan that you contribute to
another tax-favored plan.
Transfer: A movement of funds in a
tax-favored plan from one trustee di-
rectly to another, either at your request
or at the trustee's request.
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To help us develop a more useful index, please let us know if you have ideas for index entries.
See “Comments and Suggestions” in the “Introduction” for the ways you can reach us.
Index
529 program (See Qualified tuition
program (QTP))
A
Academic period:
American opportunity credit 12
Lifetime learning credit 24
Student loan interest deduction 32
Accountable plans 64, 65
Additional tax:
Coverdell ESA:
On excess contributions 43
On taxable distributions 47
IRA distributions, education
exception 54
Qualified tuition program (QTP), on
taxable distributions 53
Adjusted qualified education expenses
(See Qualified education expenses)
American opportunity credit
Adjustments to qualified education
expenses 14
Claiming dependent’s expenses 19, 20
Tuition reduction 20
Claiming the credit 11, 12, 22
Qualifying to claim (Figure 2-1) 13
Contrast to the lifetime learning
credits 72
Coordination with Coverdell ESA
distributions 46
Coordination with qualified tuition
program (QTP) distributions 52
Eligible educational institution 13
Eligible student 18
Requirements (Figure 2-2) 19
Expenses qualifying for 12, 16
Figuring the credit 20
Income level, effect on amount of
credit 21
Income limits 21
Modified adjusted gross income
(MAGI) 21
Modified adjusted gross income (MAGI)
Worksheet 2-1 21
Overview of American opportunity credit
(Table 2-1) 11
Phaseout 21
Qualified education expenses 13
Tax benefit of 9
Armed Forces Health Professions
Scholarship and Financial
Assistance Program 8
Assistance (See Tax help)
Athletic scholarships 6
B
Bar review course 62
Bonds, education savings
(See Education savings bond program)
Business deduction for work-related
education 58-66
Accountable plans 64, 65
Adjustments to qualifying work-related
education expenses 64
Allocating meal reimbursements 65
Deductible education expenses 62, 64
Deducting business expenses 65, 66
Double benefit not allowed 64
Education required by employer or by
law 59
Education to maintain or improve
skills 59
Education to meet minimum
requirements 60, 61
Education to qualify for new trade or
business 61, 62
Excess expenses, accountable plan 65
Indefinite absence 60
Maintaining skills vs. qualifying for new
job 60
Nonaccountable plans 65
Nondeductible expenses 62
Qualified education expenses 62, 64
Recordkeeping requirements 66
Reimbursements, treatment of 64, 65
Tax benefit of 59
Tax-free educational assistance 64
Teachers 61, 62
Temporary absence to acquire
education 60
Transportation expenses 62, 63
Travel expenses 63
C
Cancellation of student loan
(See Student loan cancellation)
Candidate for a degree:
Scholarships and fellowship grants 6
Change of designated beneficiary:
Coverdell ESA 44
Qualified tuition program 54
Comprehensive or bundled fees:
American opportunity credit 17
Lifetime learning credit 28
Conventions outside U.S. 63
Coverdell education savings account
(ESA) 38-49
Additional tax:
On excess contributions 43
On taxable distributions 47
Assets to be distributed at age 30 or
death of beneficiary 48
Contribution limits 41, 42
Figuring the limit (Worksheet 6-1) 42
Contributions to 40, 43
Table 6-2 40
Coordination with American opportunity
and lifetime learning credits 46
Coordination with qualified tuition
program (QTP) 46
Defined 39
Distributions 44, 48
Overview (Table 6-3) 45
Divorce, transfer due to 44
Eligible educational institution 39
Figuring taxable portion of
distribution 45
Worksheet 6-3 49
Figuring the taxable earnings in required
distribution 48
Losses 47
Modified adjusted gross income
(MAGI) 41
Worksheet 6-2 42
Overview (Table 6-1) 39
Qualified education expenses 39, 40
Rollovers 43
Tax benefit of 38
Tax-free distributions 45
Taxable distributions 45-47
Worksheet 6-3 to figure 49
Transfers 43
CPA review course 62
Credits:
American opportunity (See American
opportunity credit)
Lifetime learning (See Lifetime learning
credit)
Cruises, educational 63
D
Deductions (See Business deduction for
work-related education)
Designated beneficiary:
Coverdell ESA 39, 44
Qualified tuition program (QTP) 50, 54
Disabilities, persons with:
Impairment-related work expenses 66
Distributions (See specific benefit)
Divorce:
Coverdell ESA transfer due to 44
Expenses paid under decree:
American opportunity credit 20
Lifetime learning credit 29
Double benefit not allowed:
American opportunity credit 14
Lifetime learning credit 25
Student loan interest deduction 34
Work-related education 64
E
Early distributions from IRAs 54-56
Eligible educational institution 55
Figuring amount not subject to 10%
tax 55
Qualified education expenses 54
Reporting 55
Education IRA (See Coverdell education
savings account (ESA))
Education loans (See Student loan
interest deduction)
Education savings account
(See Coverdell education savings
account (ESA))
Education savings bond program
Cashing in bonds tax free 56, 57
Claiming exclusion 57
Eligible educational institution 57
Figuring tax-free amount 57
Income level, effect on amount of
exclusion 57
Modified adjusted gross income
(MAGI) 57
Phaseout 57
Qualified education expenses 56
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Educational assistance,
employer-provided (See Employer-
provided educational assistance)
Eligible educational institution:
American opportunity credit 13
Coverdell ESA 39
Early distributions from IRAs 55
Education savings bond program 57
Lifetime learning credit 24
Qualified tuition program (QTP) 50
Qualified tuition reduction 8
Scholarships and fellowship grants 6, 8
Student loan interest deduction 32
Eligible elementary or secondary
school:
Coverdell ESA 39
Eligible student:
American opportunity credit 18
Lifetime learning credit 28
Student loan interest deduction 32
Employer-provided educational
assistance 58
ESAs (See Coverdell education savings
account (ESA))
Estimated tax 3
Excess contributions:
Coverdell ESA 43
Excess expenses, accountable plan 65
Expenses (See specific benefit)
F
Family members, beneficiary:
Coverdell ESA 44
Qualified tuition program (QTP) 54
Fee-basis officials, work-related
education deduction 66
Fellowship grants (See Scholarships and
fellowship grants)
Figures (See Tables and figures)
Figuring tax-free and taxable
(Worksheet 1-1) 7
Financial aid (See Scholarships and
fellowship grants)
Form 1098-E:
Student loan interest deduction 33, 34
Form 1098-T:
American opportunity credit 20
Lifetime learning credit 29
Form 1099-Q:
Coverdell ESA 43, 45
Qualified tuition program (QTP) 51
Form 1099-R:
Early distributions from IRAs 55
Form 2106 64
Form 5329:
Coverdell ESA 47
Early distributions from IRAs 56
Qualified tuition program (QTP) 53
Form 8815 57
Form W-9S 20, 30, 34
Fulbright grants 7
G
Glossary 4, 74-76
Graduate education tuition reduction 9
Grants:
Fulbright 7
Pell 7
Title IV need-based education 7
H
Half-time student:
American opportunity credit 18
Coverdell ESA 40
Early distributions from IRAs 55
Student loan interest deduction 32
I
Impairment-related work expenses:
Work-related education deduction 66
Individual retirement arrangements
(IRAs) (See Early distributions from
IRAs)
L
Lifetime learning credit 23
Academic period 24
Adjustments to qualified education
expenses 25
Claiming dependent’s expenses 29
Tuition reduction 29
Claiming the credit 23, 24, 30
Qualifying to claim (Figure 3-1) 26
Contrast to the American opportunity
credit 72
Coordination with Coverdell ESA
distributions 46
Coordination with qualified tuition
program (QTP) distributions 52
Eligible educational institution 24
Eligible student 28
Expenses qualifying for 24-27
Figuring the credit 29
Income level, effect on amount of
credit 30
Income limits 30
Modified adjusted gross income
(MAGI) 30
Worksheet 3-1 30
Overview (Table 3-1) 23
Phaseout 30
Qualified education expenses 24, 27
Qualifying to claim (Figure 3-1) 26
Tax benefit of 22
Loans:
Cancellation (See Student loan
cancellation)
Capitalized interest on student loan 33
Origination fees on student loan 33
Qualified education expenses paid with:
American opportunity credit 12
Lifetime learning credit 24
Student loan repayment assistance 38
Losses, deducting:
Coverdell ESA 47
Qualified tuition program (QTP) 53
Luxury water transportation 63
M
Mileage deduction for work-related
education 58, 63
Military academy cadets 7
Missing children, photographs of 3
Modified adjusted gross income
(MAGI)
American opportunity credit 21
Coverdell ESA 41
Worksheet 6-1 42
Education savings bond program 57
Lifetime learning credit 30
Worksheet 3-1 30
Student loan interest deduction 35
Table 4-2 35
N
National Health Service Corps
Scholarship Program 6, 8
Nonaccountable plans:
Work-related education 65
P
Pell grants 7, 27
Performing artists, work-related
education deduction 66
Phaseout:
American opportunity credit 21
Education savings bond program 57
Lifetime learning credit 30
Student loan interest deduction 35
Publications (See Tax help)
Q
Qualified education expenses
Adjustments to:
American opportunity credit 14-16
Coverdell ESA 45
Education savings bond program 56
Lifetime learning credit 25
Qualified tuition program (QTP) 51
Student loan interest deduction 32
Work-related education 64
American opportunity credit 13-16
Coverdell ESA 39, 40
Early distributions from IRAs 54
Education savings bond program 56
Expenses not qualified:
American opportunity credit 17, 18
Lifetime learning credit 28
Lifetime learning credit 24-27
Qualified tuition program (QTP) 50
Scholarships and fellowship grants 6
Student loan interest deduction 32
Work-related education 62-64
Qualified elementary and secondary
education expenses:
Coverdell ESAs 40
Qualified employer plans:
Student loan interest deduction not
allowed 32
Qualified student loans 31, 32
Qualified tuition program (QTP) 50-54
Additional tax on taxable
distributions 53
Change of designated beneficiary 54
Contributions to 51
Coordination with American opportunity
and lifetime learning credits 52
Coordination with Coverdell ESA
distributions 52
Defined 50
Eligible educational institution 50
Figuring taxable portion of
distribution 51
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Losses 53
Recontribution 51
Rollovers 53, 54
Tax benefit of 50
Taxability of distributions 51-53
Taxable earnings 52
Transfers 53, 54
Qualified tuition reduction 8, 9
Qualified U.S. savings bonds 56
Qualifying work-related
education 59-62
Determining if qualified (Figure 11-1) 60
R
Recapture:
American opportunity credit 15
Lifetime learning credit 27
Recordkeeping requirements:
Work-related education 66
Refinanced and consolidated student
loans 33
Reimbursements
Nondeductible expenses 65
Work-related education 64, 65
Related persons:
Coverdell ESA 44
Qualified tuition program (QTP) 54
Student loan interest deduction 32
Repayment programs (See Student loan
repayment assistance)
Reporting
American opportunity credit 22
Coverdell ESA 43, 45, 47
Early distributions from IRAs 55
Education savings bond program 57
Lifetime learning credit 30
Qualified tuition program (QTP) 52, 53
Scholarships and fellowship grants,
taxable 6
Student loan interest deduction 35
Tuition reduction, taxable 9
Work-related education expenses 65,
66
Revolving lines of credit, interest on 33
Rollovers
Coverdell ESA 43
Qualified tuition program (QTP) 53, 54
S
Scholarships and fellowship grants 5,
27
Athletic scholarships 6
Eligible educational institution 6, 8
Qualified education expenses 6
Reporting 6
Scholarship, defined 5
Tax treatment of 5
Tax-free 5, 6
Taxable 6
Taxable scholarship and fellowship grant
income (Worksheet 1-1) 7
Section 501(c)(3) organizations
(See Student loan cancellation)
Section 529 program (See Qualified
tuition program (QTP))
Self-employed persons:
Deducting work-related education
expenses 65
Service academy cadets 7
Sports, games, hobbies, and noncredit
courses:
American opportunity credit 17
Education savings bond program 56
Lifetime learning credit 28
Standard mileage rate:
Work-related education 58, 63
State prepaid education accounts
(See Qualified tuition program (QTP))
Student loan cancellation 37
Section 501(c)(3) organizations 38
Student loan interest deduction
Academic period 32
Adjustments to qualified education
expenses 32
Allocation between interest and
principal 33
Claiming the deduction 35
Eligible educational institution 32
Eligible student 32
Figuring the deduction 34, 35
Include as interest 33
Income level, effect on amount of
deduction 35
Loan repayment assistance 34
Modified adjusted gross income
(MAGI) 35
Table 4-2 35
Not included as interest 33
Phaseout 35
Qualified education expenses 32
Qualified employer plans 32
Qualified student loans 31, 32
Reasonable period of time 31
Related persons 32
Student loan interest, defined 31, 34
Third-party interest payments 34
When interest must be paid 34
Worksheet 4-1 36
Student loan repayment assistance 38
Surviving spouse:
Coverdell ESA transfer to 48
T
Tables and figures
American opportunity credit:
Eligible student requirements (Figure
2-2) 19
Overview (Table 2-1) 11
Qualifying to claim (Figure 2-1) 13
Comparison of education tax
benefits 72
Coverdell ESAs:
Contributions to (Table 6-2) 40
Distributions (Table 6-3) 45
Overview (Table 6-1) 39
Education credits:
Overview of American opportunity
credit (Table 2-1) 11
Overview of lifetime learning credit
(Table 3-1) 23
Lifetime learning credit:
Overview (Table 3-1) 23
Qualifying to claim (Figure 3-1) 26
Student loan interest deduction:
MAGI, effect of (Table 4-2) 35
Overview (Table 4-1) 31
Summary chart of differences between
education tax benefits 72
Work-related education, qualifying
(Figure 11-1) 60
Tax help 66
Tax-free educational assistance:
American opportunity credit 14
Coverdell ESA 45
Early distributions from IRAs 55
Education savings bond program 56
Lifetime learning credit 25
Qualified tuition program (QTP) 52
Work-related education 64
Taxable scholarships and fellowship
grants 6
Teachers 61, 62
Temporary-basis student,
transportation expenses of 62
Title IV need-based education grants 7
Transfers
Coverdell ESA 43
Qualified tuition program (QTP) 53, 54
Transportation expenses
Work-related education 62, 63
Travel expenses:
50% limit on meals 64
Not deductible as form of education 64
Work-related education 63
Tuition reduction
American opportunity credit 20
Lifetime learning credit 29
Qualified 8, 9
U
U.S. savings bonds 56
Unclaimed reimbursement:
Work-related education 62
V
Veterans' benefits 8
W
Withholding 4
Work-related education (See Business
deduction for work-related education)
Working condition fringe benefit 58
Worksheets:
American opportunity credit MAGI
calculation (Worksheet 2-1) 21
Coverdell ESA:
Contribution limit (Worksheet 6-2) 42
MAGI, calculation of (Worksheet
6-1) 42
Taxable distributions and basis
(Worksheet 6-3) 49
Lifetime learning credit MAGI calculation
(Worksheet 3-1) 30
Scholarships and fellowship grants
(Worksheet 1-1) 7
Student loan interest deduction
(Worksheet 4-1) 36
Publication 970 (2023) 79