Tax Benefits for Education

February 6, 2022

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The IRS can help put some of the cost of medical school expenses back in your pocket. Qualifying taxpayers can benefit from tax credits and tax deductions. Three programs are highlighted below, and additional programs are detailed in IRS Publication 970. Choose the program that will benefit you the most.

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Student Loan Interest Deduction

This deduction allows qualified individuals to deduct up to $2,500 of interest paid on their student loans from their taxable income.

  • The amount of the deduction is phased out (gradually reduced) when your modified adjusted gross income (MAGI) reaches the annual limit for your filing status.
  • Qualified student loans must have been used for educational expenses and the student must have been enrolled at least half-time in a degree granting program.

For further details and qualifications, refer to the Student Loan Interest Deduction section of IRS Publication 970.

A Note About Deductions

The Student Loan Interest Deduction is taken as an adjustment to income, which means you can claim the eligible deduction even if you do not itemize deductions when filing your federal income taxes.

Lifetime Learning Tax Credit

This credit allows you to reduce your tax bill on a dollar-for-dollar basis, up to $2,000 per return.

  • The amount of your credit is gradually reduced if your MAGI is between $80,000 and $90,000 ($160,000 and $180,000 if you file a joint return).

  • There is no limit to the number of years this credit can be claimed for each student.

  • Credit is available for qualified expenses of tuition and fees required for enrollment.
  • To claim the credit, you may not be listed as a dependent on another person’s tax return (such as your parents’ return).

  • To determine your lifetime learning credit, you should receive Form 1098-T from your eligible educational institution.

What's the Difference Between a Tax Credit and a Tax Deduction?

A tax credit lowers your tax bill, dollar for dollar, while a deduction reduces your taxable income.

Tax Considerations for Loan Forgiveness

Medical students and residents considering Income Based Repayment (IBR), Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), and Public Service Loan Forgiveness (PSLF) need to be aware of how tax filing status can impact a borrower’s required monthly repayment amounts as well as potential forgiveness implications that may exist.

Loan amounts forgiven through PSLF are not currently taxable; however, loan amounts forgiven due to reaching the end of the repayment term for IBR, PAYE and REPAYE are currently taxable.

The American Rescue Plan Act of 2021 modified the treatment of student loan forgiveness for discharges in 2021 through 2025. See Chapter 5 of Publication 970 for more information.

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