What Benefits are Not Taxable?

• Income from scholarships, grants and fellowships are not taxable if they are used for a qualified expense. Qualified expenses include tuition and fees and required books or supplies for students who are degree candidates. Any Veteran's Education Benefits are not considered taxable income.
  
  

What Benefits are Taxable?

• Income from scholarships, grants or fellowships may be taxable. If the funds are used for expenses such as room and board or travel, the income is taxable. In addition, if the student is not a degree candidate, using the funds for tuition, fees, books and supplies is also taxable.
  
  

Tax Credits

• Publication 970 offers three possible tax credits, which reduce the amount of tax owed by the student. Students may only use one credit each year.
  
  The American Opportunity Credit is $2500 for qualified expenses. The student must be pursuing an undergraduate degree and enrolled at least half-time. This credit may be claimed for the first four years of post-secondary education.
  
  The Hope Credit is $3600 for students in a Midwestern disaster area and $1800 for all other students. The student must be pursuing an undergraduate degree and enrolled at least half-time. This credit may be claimed for the first two years of post-secondary education.
  
  Lifetime Learning Credit is $4000 for students in a Midwestern disaster area and $2000 for all other students. The student can be pursuing any type of degree or job skills courses and enrolled in at least one course. This credit may be claimed for an unlimited number of years.
  
  

Deductions

• Publication 970 also includes information about tax deductions, which reduce the amount of income that is considered taxable. The Student Loan Interest Tax Deduction allows the student loan holder to reduce taxable income up to $2500 based upon interest paid on the student loan during the year.
  
  The Tuition and Fees Deduction reduces taxable income up to $4000 for tuition and fees paid for post-secondary education. This deduction cannot be claimed if any of the education credits are taken.
  
  

Loan Repayment Assistance

• Student Loan Repayment Assistance is a program that forgives student loans after the student has worked in a qualified position for a certain period of time. This benefit may be tax-free if it is from the National Health Service Corps (NHSC) Loan Repayment Program, a state program eligible for funds under the Public Health Service Act or a Law School Loan Repayment Assistance Program (LRAP).
  
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