Millions of workers lost their jobs during the pandemic. Some others quit their jobs. The stress and change brought by COVID-19 made them reflect on their careers and ponder how they want to spend the rest of their working years. Whether they quit or not, thousands of adults have been preparing for new career opportunities by enrolling in education of one type or another: college, professional certifications, graduate school, etc.
Investing in education to meet new challenges is a smart move. But it can be expensive. Good news – there are two education tax benefits available to eligible taxpayers that can reduce those out-of-pocket education expenses. The IRS has all the details here at their website https://www.irs.gov/newsroom/tax-benefits-for-education-information-center. It’s a lot to read, so here are a couple of highlights:
- Education Tax Credits
An education credit, either the American Opportunity Tax Credit or the Lifetime Learning Credit, helps to defray the cost of higher education with a dollar-for-dollar federal tax liability reduction. The credit is refundable, so it can reduce your tax below zero. To take the tax credit, you, your spouse, or your dependent must incur and pay qualified expenses for higher education at an eligible education institution. Qualified expenses include tuition, fees, and other related expense for an eligible student required for enrollment or attendance.
- Student Loan Interest Deduction
Generally, personal interest is not deductible, other than for a home mortgage. However, if your modified adjusted gross income (MAGI) is less than $85,000 ($170,000 if filing a joint return), there is a special deduction allowed for paying interest on a student loan used for qualified higher education expenses. The student loan interest deduction can reduce the amount of your income subject to tax by up to $2,500. The amount of actual tax savings will depend on your marginal income tax bracket.
Stressful times, like the pandemic, often make people reflect on the course of their lives, including their career. That reflection can lead to enrolling in additional training or education. If you are deciding whether to invest in education, due to COVID-19 or another reason, you need to know the overall cost. Two education tax benefits can, depending on your situation, reduce your federal income tax liability and defray your out-of-pocket education expenses.
Want more details? Check out the IRS website at https://www.irs.gov/newsroom/tax-benefits-for-education-information-center.