Education Tax Incentives

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.

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) if your modified adjusted gross income (MAGI) is $80,000 or more if single (or $165,000 or more if married filing jointly).
  • 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.

Tuition and Fees Deduction*

This deduction may reduce your taxable income up to $4,000.

  • You may be eligible to deduct up to $4,000 if your MAGI is $80,000 or less if single (or $160,000 or less if married filing jointly).
  • The Tuition and Fees Deduction amount is based on the amount of qualified education expenses paid.

*Per the Bipartisan Act of 2018, signed into law 2/9/18, this deduction has been extended for tax year 2017.

A Note About Deductions

Both the Student Loan Interest Deduction and the Tuition and Fees Deduction are taken as adjustments to income, which means you can claim the 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 limit on MAGI is $66,000 if single (or $132,000 or less if married filing jointly).
  • This credit is available for all years of postsecondary education.
  • Credit is available for qualified expenses of tuition and fees required for enrollment.
  • To help determine your lifetime learning credit, a student should receive Form 1098-T from their eligible educational institution.

For further details and qualifications, refer to the Lifetime Learning Tax Credit section of IRS publication 970.

Use the Interactive Tax Assistant from the IRS to help you determine if you are eligible for an education deduction or credit.

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. Consider this example for an individual in the 28% tax bracket: A $1,000 tax credit will reduce his tax liability by the full $1,000; a $1,000 deduction will reduce his taxable income by that amount, effectively shaving $280 off his tax bill.

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 tax implications for these programs.

  • Loan amounts forgiven at the end of IBR, PAYE, and REPAYE are taxable.
  • Loan amounts forgiven at the end of PSLF are not currently taxable.

To determine if the portion of your forgiven loan is taxable as income, please contact your loan servicer.

No Double Benefit Allowed

You cannot claim a Lifetime Learning Tax Credit in the same year that you are claiming a Tuition and Fees Deduction.

This material is provided for general information only. Please see your tax advisor for information about other tax-related educational benefits, and for information regarding your specific situation.

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