If you’re a student whose finances are still intertwined with your parents’, filing your taxes with the Internal Revenue Service (IRS) may be a bit complicated. Perhaps you’re not sure if it’s you or your parents who are allowed to claim educational tax deductions for college.
That’s where this guide comes in. It will help you determine if you qualify as a dependent student and who’s entitled to college tax deductions that ease higher education’s financial burden. Let’s dive in.
What is the dependent student exemption?
A personal exemption is a portion of your income the IRS gives you tax-free – $4,050 in 2016 – for yourself and each dependent.
But a personal exemption can’t be claimed twice on separate returns for the same person. That’s why a parent can’t claim a dependent exemption for an adult student who claimed a personal exemption on their own return and vice versa.
Who claims the personal or dependent exemption for a student?
As a student who gets financial assistance from parents, how can you tell if you’re a dependent student or not?
Well, the good news is the IRS has a questionnaire that can help you answer that. There’s also IRS Publication 501 that lists the full details of personal exemptions. But generally, it comes down to who is paying the bills.
If you pay for more than half of your support (even if you use student loans), you can claim your personal exemption. But if your parents provide more than half your support, then they can claim you as a dependent.
Additionally, the IRS has an added income cap on dependency if you are 24 or over; 19 or over if not a full-time student. In this case, a parent can only claim you as a dependent if you earned less than $4,050 in 2016.
Who claims these educational tax deductions?
It’s important to first figure out your dependent student status. This directly affects who gets to claim important educational tax deductions and credits like the following:
- American Opportunity and Lifetime Learning tax credits
- Tuition and fees deduction
- Student loan interest deduction
IRS Publication 970 outlines the rules for claiming these educational tax deductions and credits. But this overview will help you quickly figure out whether you or your parent should claim college tax deductions.
1. American Opportunity and Lifetime Learning tax credits
The IRS treats the American Opportunity and Lifetime Learning tax credits similarly when it comes to whether a parent or student dependent gets to claim them.
“If there are qualified education expenses for your dependent 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,” the IRS states. The same applies to the Lifetime Learning credit.
So who gets to claim the American Opportunity or Lifetime Learning tax credits for a student’s expenses? The IRS has this table to clarify:
If you are not a dependent, you can claim the American Opportunity Tax Credit or Lifetime Learning tax credit for yourself.
But if you’re a dependent, you can’t claim either credit, even if you paid for educational expenses like books or tuition out of your own pocket. That’s because the IRS treats those expenses as if they were paid by your parent.
In fact, IRS guidelines state that “qualified education expenses paid by a dependent for whom you claim an exemption, or by a third party for that dependent, are considered paid by you,”
2. Tuition and fees deduction
If you are a student claiming your own personal exemption (meaning you’re not a dependent student), you can claim the Tuition and Fees deduction. You can write off all qualifying educational expenses you paid for, up to $4,000.
However, if you’re a dependent, only the filer gets to write off your educational expenses – and only the educational expenses they paid for. Conversely, no one else can claim the tuition and fees paid by you, the dependent, for the tuition and fees deduction.
This table from the IRS helps explain:
3. Student loan tax deduction
Then there is the student loan tax deduction. By claiming this deduction, a filer can write off interest payments on educational debts. Here are a few rules that determine who can (or can’t) claim a deduction for student loan interest.
- You can’t be a dependent or married filing separately. If you’re a dependent, you won’t be able to write off the student loan interest you pay on your own loans (and neither can anyone else). You also can’t claim this deduction if you’re married and filing separately.
- You must be legally responsible for the student loan. Your parents can only write-off payments they made on your student loans if they are owners or cosigners on the debt. And you would not be able to claim a deduction for payments you made to Parent PLUS Loans your parent took out for your education since these are in your parent’s name only.
- You must be the person who paid the interest to claim the deduction. If your parents are the ones covering monthly payments on student loans that are only in your name, you can’t claim a deduction because you didn’t pay the interest. If your parents made payments on your cosigned student loan, however, they could claim a deduction for this debt.
If you’re still wondering if you’re eligible for this benefit, check out our student loan tax deduction calculator below. It can also help you estimate how much you could save by claiming this deduction.
Interest Deduction Calculator
Lower your tax bill by claiming the right deductions
Trying to figure out who should claim educational tax deductions isn’t simple. It can take a lot of wading through piles of paperwork, tax jargon, and IRS policies.
But getting it right will help you file taxes correctly and avoid headaches and hassles while (hopefully) lowering your tax bill.