Looking to save money on online college costs? You may be able to deduct some—or all—of what you spend on distance learning from your income tax bill by using education tax deductions.

Tax deductions are subtracted from your income. They may reduce what you owe the IRS by putting you in a lower income category.

For example, if you make $36,000, and you qualify for $4,000 in higher education deductions, you can subtract this amount from your income. This means your adjusted income is only $32,000. You only pay taxes on this amount, not $40,000.
 
Also, by going from $36,000 to $32,000 in income, you switch to a different tax bracket. The IRS charges a 20 percent rate for someone making $36,000, but only a 15 percent rate for someone making $32,000. Moving to a lower tax bracket could save you thousands of dollars in taxes.
 
Not everybody will see this much savings by using tax deductions for education. Some people might find that education tax credits save them more money than deductions.
 
(Tax credits are subtracted directly from your tax bill, rather than deducted from your income. For more information about credits, see Best Tax Credits for Online Education.)

Here are the types of deductions available for education:

Tuition and Fees Deduction

Who Qualifies:

~ Income limit (modified adjusted gross income) is $80,000 ($160,000 if filing jointly).
~ Not available if you are married filing separately

Benefit:

You may be able to deduct as much as $4,000 in qualified higher education expenses from your income.


Student Loan Interest Deduction

Who Qualifies:

~ Income limit (modified adjusted gross income) is $75,000 ($150,000 if filing jointly.

Benefit:

~ You can claim up to $2,500 in interest paid annually on student loans (what you pay to reduce the principal is not covered)
~ Not eligible: interest paid on loans from relatives or employers


Work-Related Education Deduction

Who Qualifies

Those who itemize deductions and who have taken work-related education

~ Limits: Only expenses that amount to more than 2 percent of your adjusted gross income qualify. (For example, if you make $50,000 annually, you can only claim expenses over $1,000.)

~ Education must be “work-related” as defined by the IRS. This means directly related to your current job or career position.


Related Resources

Tax Benefits for Education: Information Center (IRS site)
Seven Ways Online College Admissions Reps Pressure Students to Enroll
Six Tricks Online Colleges Use to Appear Less Expensive
Five Ways to Earn College Credit for Career & Life Experience
Can Old Undergraduate Credits Be Transferred to a New Degree?
Are Expensive Online Colleges Better Than Cheap Ones?
10 Free Online Classes To Help You Get Ahead on the Job
Seven Ways You Can Save Thousands By Going to School Online
Four Ways to Get Your Boss to Pay for Your Online Education
Best Tax Credits for Online Education
How to Save Money on College Textbooks—and Even Get Some for Free
GetEducated Consumer's Guide to Student Loans
GetEducated Guide to Scholarships and Free Money

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