What Is IRS Publication 970: Tax Benefits for Education?
IRS Publication 970 is a document published by the Internal Revenue Service (IRS) that provides information on tax benefits available to students and families saving or paying for college. It explains the tax treatment for the most common forms of college funding, such as scholarships, fellowships and grants, and tuition reductions.
Publication 970 outlines two tax credits: the American Opportunity Tax Credit and the Lifetime Learning Credit. In addition, IRS Publication 970 outlines 9 tax benefits that students and their families can claim in order to reduce the income tax they owe.
These benefits include the deductibility of interest paid on student loan debt, tax-free treatment of canceled student loan debt, the deductibility of tuition and fees, contributions to tax-advantaged Coverdell Education Savings Accounts (ESAs), and participation in a qualified tuition program. Further tax incentives to education spending outlined in IRS Publication 970 include the ability to cash in savings bonds tax-free if the proceeds are used for education, the ability to take penalty-free withdrawals from retirement savings accounts and the deductibility of education expenses from business income.
- The tax credits and benefits are available to students saving for or paying education costs for themselves, sometimes, for another family member.
- Most of the tax credits and benefits outlined in Publication 970 apply only to higher education—colleges, universities, conservatories or post-graduate programs.
- Student loan interest deductions and learning credits are dependent on adjusted gross income and are phased out on incomes above a certain annually adjusted level.
Other Relevant Forms
Taxpayers using education credits and/or deductions will also need to have received Form 1098-T: Tuition Statement, which includes the educational institution's employer identification number (EIN). They will also have to file Form 8863 to claim the American Opportunity and Lifetime Learning Credits. Under certain conditions, a student may still claim the credit if form 1098-T has not been received.
IRS Publication 970 and the Federal Budget
Tax breaks given out for specific purposes are sometimes called "tax expenditures" by tax policy experts. IRS Publication 970 is a detailed overview of the tax expenditures Congress has allocated to promote the education and training of Americans.
Tax credits and deductions for post-secondary education expenses reduced 2021 federal tax revenues by an estimated $9.3 billion; however, the figure is expected to increase substantially in 2022 to $14.6 billion. Another expensive provision of the tax code related to education is the deductibility of student loan interest. This tax break reduced taxes by an estimated $2.1 billion in 2021 and is predicted to reduce 2022 revenue by $2.3 billion.
IRS Publication 970 and Updates
The tax liability of America's college students was widely discussed during the debate over tax reform enacted by Congress in 2017. Initial versions of the bill would have eliminated the ability of many students to receive tuition waivers tax-free. This issue is of particular importance to graduate students, many of whom can only afford to attend school thanks to tuition waivers. After students demonstrated against the proposed change, the bill was amended to keep tuition waivers tax free. The Bipartisan Budget Act, enacted Feb. 9, 2018, extended the date for many benefits in the tax law and added a few new ones.
Publication 970 is updated regularly to reflect any changes in the tax code or tax regulations.
Download IRS Publication 970: Tax Benefits for Education
All revisions of Publication 970 are available on the IRS website as well as recent developments.