Tax Benefits for Education: Credits, Deductions, and 529 Plans

Education Tax Credits

American Opportunity Tax Credit (AOTC)

Up to $2,500 per eligible student per year

Available for the first four years of higher education

40% is refundable (up to $1,000 back even if you owe no tax)

Income limits: phases out at $80,000-$90,000 (single) or $160,000-$180,000 (joint)

Qualifying expenses: tuition, fees, books, supplies

Lifetime Learning Credit (LLC)

Up to $2,000 per tax return (not per student)

Available for any year of post-secondary education and courses to improve job skills

Not refundable

Income limit: phases out at $80,000-$90,000 (single) or $160,000-$180,000 (joint)

You cannot claim both credits for the same student in the same year. Generally, the AOTC is more valuable if eligible.

Student Loan Interest Deduction

Deduct up to $2,500 of student loan interest paid during the year. This is an above-the-line deduction, so you do not need to itemize. Income phaseout: $75,000-$90,000 (single) or $155,000-$185,000 (joint).

529 College Savings Plans

Tax Benefits

Contributions grow tax-free

Withdrawals for qualified education expenses are tax-free

37 states offer a state tax deduction for contributions

Can be used for K-12 tuition (up to $10,000/year), college, and student loan repayment (up to $10,000 lifetime)

Superfunding

You can contribute up to five years of the annual gift tax exclusion ($90,000 in 2025) in a single year without triggering gift tax.

529 to Roth IRA Rollover

Starting in 2024, you can roll over unused 529 funds to a Roth IRA for the beneficiary. Limits apply: $7,000 per year, $35,000 lifetime, and the 529 must have been open for 15+ years.

Employer Education Assistance

Employers can provide up to $5,250 per year in tax-free education assistance under Section 127. This covers tuition, fees, books, and supplies for courses not necessarily related to your current job.

Taxation.ai automatically identifies which education benefits provide the maximum tax savings based on your specific income and education expenses.