Tax Benefits for Higher Education

The National Association of Student Financial Aid Administrators (NASFAA) publishes the Parent and Student Guide to Federal Tax Benefits for Tuition and Fees to provide students, parents, counselors, and others with general guidance to federal education-related tax benefits. The Guide includes basic information about the Hope Scholarship tax credit, the Lifetime Learning tax credit, and the Tuition and Fees Tax Deduction.  In addition, you should learn about federal tax benefits for education, including the American Opportunity Tax Credit (AOTC).

To help ease the financial burden for South Carolina college students and their families, the South Carolina General Assembly has created an income tax credit for tuition paid to South Carolina colleges and universities. You must file a Form SC1040 to claim the credit. The short form, Form SC1040A, cannot be used to claim the credit. When preparing your South Carolina income tax return, you will need to complete Form I-319 Tuition Tax Credit, which will be included with all state individual income tax booklets. Visit the South Carolina Tuition Tax Credit website for more information.

A federal education credit helps with the cost of higher education by reducing the amount of tax owed on your tax return. If the credit reduces your tax to less than zero, you may get a refund. There are two education credits available: the American Opportunity Tax Credit and the Lifetime Learning Credit.  Don’t overlook these important credits.

You may also want to review IRS Publication 970. This publication explains tax benefits that may be available 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.  IRS Publication 970 also discusses the income tax treatment of various types of educational assistance you may receive here at CofC: basically 'do I need to pay taxes or not'. Included are discussions of:

  • Scholarships
  • Fellowships
  • Need-based education grants, such as a Pell Grant
  • Qualified tuition reductions.

Many types of educational assistance are tax free if they meet the requirements discussed in IRS Publication 970. Special rules apply to U.S. citizens and resident aliens who have received scholarships or fellowships for studying, teaching, or researching abroad. For information about these rules, see Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.