Department of the Treasury

Internal Revenue Service

Publication 970

Cat. No. 25221V

Tax Benefits 

for Education

For use in preparing

2021 Returns

Get forms and other information faster and easier at:

• IRS.gov (English) 

• IRS.gov/Spanish (Español) 

• IRS.gov/Chinese (中文) 

• IRS.gov/Korean (한국어) 

• IRS.gov/Russian (Pусский) 

• IRS.gov/Vietnamese (Tiếng Việt) 

Contents

Future Developments ....................... 2

What's New .............................. 2

Reminders ............................... 2

Introduction .............................. 3

Chapter 1. Scholarships, Fellowship Grants, 

Grants, and Tuition Reductions ............ 5

Scholarships and Fellowship Grants .......... 5

Other Types of Educational Assistance ........ 7

Chapter 2. American Opportunity Credit ....... 9

Can You Claim the Credit? ................ 11

What Expenses Qualify? .................. 12

Who Is an Eligible Student? ................ 18

Who Can Claim a Dependent's Expenses? ..... 19

Figuring the Credit ...................... 20

Claiming the Credit ...................... 22

Chapter 3. Lifetime Learning Credit .......... 22

Can You Claim the Credit? ................ 23

What Expenses Qualify? ................. 24

Who Is an Eligible Student? ............... 29

Who Can Claim a Dependent's Expenses? .... 29

Figuring the Credit ...................... 30

Claiming the Credit ...................... 31

Chapter 4. Student Loan Interest Deduction ... 31

Student Loan Interest Defined .............. 32

Can You Claim the Deduction? ............. 34

Figuring the Deduction ................... 35

Claiming the Deduction ................... 36

Chapter 5. Student Loan Cancellations and 

Repayment Assistance ................. 38

Loan for Postsecondary Educational 

Expenses ........................... 38

Student Loan Repayment Assistance ......... 39

Chapter 6. Coverdell Education Savings 

Account (ESA) ........................ 39

What Is a Coverdell ESA? ................. 40

Contributions .......................... 41

Rollovers and Other Transfers .............. 44

Distributions ........................... 45

Chapter 7. Qualified Tuition Program (QTP) .... 51

What Is a QTP? ........................ 51

How Much Can You Contribute? ............ 52

Recontribution of Refunded Amounts ......... 52

Are Distributions Taxable? ................ 52

Rollovers and Other Transfers .............. 54

Chapter 8. Education Exception to Additional 

Tax on Early IRA Distributions ............ 55

Who Is Eligible? ........................ 55

Feb 15, 2022
Figuring the Amount Not Subject to the 10% 

Tax ............................... 56

Reporting Early Distributions ............... 56

Chapter 9. Education Savings 

Bond Program ........................ 57

Who Can Cash in Bonds Tax Free? .......... 57

Figuring the Tax-Free Amount .............. 58

Claiming the Exclusion ................... 58

Chapter 10. Employer-Provided Educational 

Assistance ........................... 58

Chapter 11. Business Deduction for 

Work-Related Education ................ 59

Qualifying Work-Related Education .......... 60

What Expenses Can Be Deducted? .......... 63

How To Treat Reimbursements ............. 65

Deducting Business Expenses ............. 66

Recordkeeping ......................... 67

Chapter 12. How To Get Tax Help ............ 67

Appendices ............................. 72

Glossary ................................ 82

Index .................................. 85

Future Developments

For the latest information about developments related to 

Pub. 970, such as legislation enacted after it was 

published, go to IRS.gov/Pub970.

What's New

Higher education emergency grants. Emergency financial aid grants under the following are not included in 

your gross income.

• The CARES Act.

• The Coronavirus Response and Relief Supplemental 

Appropriations Act, 2021.

• The American Rescue Plan Act of 2021.

Also, for purposes of the American opportunity tax 

credit (see chapter 2) and lifetime learning credit (see 

chapter 3), a student does not reduce an amount of qualified tuition and related expenses by the amount of an 

emergency financial aid grant. For more information, see 

Higher Education Emergency Grants Frequently Asked 

Questions.

Lifetime learning credit. For 2021, the amount of your 

lifetime learning credit is gradually reduced (phased out) if 

your MAGI is between $80,000 and $90,000 ($160,000 

and $180,000 if you file a joint return). You can't claim the 

credit if your MAGI is $90,000 or more ($180,000 or more 

if you file a joint return). See chapter 3.

Student loan interest deduction. 

• For 2021, the amount of your student loan interest deduction is gradually reduced (phased out) if your 

MAGI is between $70,000 and $85,000 ($140,000 

and $170,000 if you file a joint return). You can’t claim 

the deduction if your MAGI is $85,000 or more 

($170,000 or more if you file a joint return).

• You can’t deduct as interest on a student loan any interest paid by your employer after March 27, 2000, 

and before January 1, 2026, under an educational assistance program.

See chapter 4.

Student loan forgiveness. The American Rescue Plan 

Act of 2021 modified the treatment of student loan forgiveness for discharges in 2021 through 2025. See chapter 5.

Tuition and fees deduction. The Taxpayer Certainty 

and Disaster Tax Relief Act of 2020 repealed the tuition 

and fees deduction for tax years beginning after 2020. Income limitations for the lifetime learning credit were increased to help filers transition to the lifetime learning 

credit. We removed former chapter 6 and renumbered 

chapters 7 through 13 for this revision.

Education savings bond program. For 2021, the 

amount of your education savings bond interest exclusion 

is gradually reduced (phased out) if your MAGI is between 

$83,200 and $98,200 ($124,800 and $154,800 if you file a 

joint return). You can't exclude any of the interest if your 

MAGI is $98,200 or more ($154,800 or more if you file a 

joint return). See chapter 9.

Business deduction for work-related education. Generally, if you claim a business deduction for work-related 

education and you drive your car to and from school, the 

amount you can deduct for miles driven from January 1, 

2021, through December 31, 2021, is 56 cents a mile. See 

chapter 11.

Reminders

Form 1098-T, Tuition Statement. When figuring an education credit or tuition and fees deduction, use only the 

amounts you paid and are deemed to have paid during 

the tax year for qualified education expenses. In most cases, the student should receive Form 1098-T from the eligible educational institution by January 31, 2022. However, the amount on Form 1098-T might be different from 

the amount you actually paid and are deemed to have 

paid. In addition, Form 1098-T should give you other information for that institution, such as adjustments made for 

prior years, the amount of scholarships or grants, reimbursements, or refunds, and whether the student was enrolled at least half-time or was a graduate student. The eligible educational institution may ask for a completed Form 

W-9S, Request for Student's or Borrower's Taxpayer 

Identification Number and Certification, or similar statement to obtain the student's name, address, and taxpayer 

identification number.

Form 1098-T requirement. To be eligible to claim the 

American opportunity credit or lifetime learning credit, the 

Page 2 Publication 970 (2021)
law requires a taxpayer (or a dependent) to have received 

Form 1098-T, Tuition Statement, from an eligible educational institution, whether domestic or foreign.

However, you may claim a credit or deduction if the student doesn't receive Form 1098-T because the student's 

educational institution isn't required to furnish Form 

1098-T to the student under existing rules (for example, if 

the student is a qualified nonresident alien, has qualified 

education expenses paid entirely with scholarships, has 

qualified education expenses paid under a formal billing 

arrangement, or is enrolled in courses for which no academic credit is awarded). If a student's educational institution isn't required to provide Form 1098-T to the student, 

you may claim a credit or deduction without Form 1098-T 

if you otherwise qualify, can demonstrate that you (or a 

dependent) were enrolled at an eligible educational institution, and can substantiate the payment of qualified tuition and related expenses.

You may also claim a credit or deduction if the student 

attended an eligible educational institution required to furnish Form 1098-T but the student doesn’t receive Form 

1098-T before you file your tax return (for example, if the 

institution is otherwise required to furnish Form 1098-T 

and doesn’t furnish it or refuses to do so) and you take the 

following required steps: After January 31, 2022, but before you file your 2021 tax return, you or the student must 

request that the educational institution furnish Form 

1098-T. You must fully cooperate with the educational institution's efforts to gather the information needed to furnish Form 1098-T. You must also otherwise qualify for the 

benefit, be able to demonstrate that you (or a dependent) 

were enrolled at an eligible educational institution, and 

substantiate the payment of qualified tuition and related 

expenses.

Educational institution's EIN required. To claim the 

American opportunity credit, you must provide the educational institution's employer identification number (EIN) on 

your Form 8863. You should be able to obtain this information from Form 1098-T or the educational institution. 

See chapter 2.

Form 8862 may be required. If your American opportunity credit was denied or reduced for any reason other 

than a math or clerical error for any tax year beginning after 2015, you must attach a completed Form 8862, Information To Claim Certain Credits After Disallowance, to 

your tax return for the next year for which you claim the 

credit. See chapter 2.

Ban on claiming the American opportunity credit. If 

you claim the American opportunity credit even though 

you're not eligible, you may be banned from claiming the 

credit for 2 or 10 years depending on your conduct. See 

chapter 2.

Taxpayer identification number (TIN) needed by due 

date of return. If you haven’t been issued a TIN by the 

due date of your 2021 return (including extensions), you 

can't claim the American opportunity credit on either your 

original or an amended 2021 return. Also, the American 

opportunity credit isn't allowed on either your original or an 

amended 2021 return for a student who hasn’t been issued a TIN by the due date of your return (including 

extensions). See chapter 2.

Coordination with Pell grants and other scholarships 

or fellowship grants. It may benefit you to choose to include otherwise tax-free scholarships or fellowship grants 

in income. This may increase your education credit and 

lower your total tax or increase your refund. See Coordination with Pell grants and other scholarships or fellowship grants in chapter 2 and chapter 3.

Achieving a Better Life Experience (ABLE) account. 

This is a savings account for individuals with disabilities 

and their families. Distributions are tax free if used to pay 

the beneficiary's qualified disability expenses, which may 

include education expenses. For more information, see 

Pub. 907, Tax Highlights for Persons With Disabilities.

Estimated tax payments. If you have taxable income 

from any of your education benefits and the payer doesn't 

withhold enough income tax, you may need to make estimated tax payments. For more information, see Pub. 505, 

Tax Withholding and Estimated Tax.

Employer-provided educational assistance benefits. 

Employer-provided educational assistance benefits include payments made after March 27, 2020, and before 

January 1, 2026, for principal or interest on any qualified 

education loan you incurred for your education. See chapter 10.

Miscellaneous itemized deductions. For tax years beginning after 2017 and before 2026, you no longer deduct 

work-related education expenses as a miscellaneous 

itemized deduction subject to a 2%-of-adjusted-gross-income floor. See chapter 11.

Photographs of missing children. The Internal Revenue Service is a proud partner with the National Center for 

Missing & Exploited Children® (NCMEC). Photographs of 

missing children selected by the Center may appear in 

this publication on pages that would otherwise be blank. 

You can help bring these children home by looking at the 

photographs and calling 1-800-THE-LOST 

(800-843-5678) if you recognize a child.

Introduction

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.

What is in this publication. Chapter 1 explains the tax 

treatment of various types of educational assistance, including scholarships, fellowship grants, and tuition reductions.

Two tax credits for which you may be eligible are explained in chapter 2 and chapter 3. These benefits, which 

reduce the amount of income tax you may have to pay, 

are:

• The American opportunity credit, and

• The lifetime learning credit.

Publication 970 (2021) Page 3
Nine other types of benefits are explained in chapters 4 

through 11. These benefits, which reduce the amount of 

income tax you may have to pay, are:

• Deduct student loan interest;

• Receive tax-free treatment of a canceled student loan;

• Receive tax-free student loan repayment assistance;

• Establish and contribute to a Coverdell education savings account (ESA), which features tax-free earnings;

• Participate in a qualified tuition program (QTP), which 

features tax-free earnings;

• Take early distributions from any type of individual retirement arrangement (IRA) for education costs without paying the 10% additional tax on early distributions;

• Cash in savings bonds for education costs without 

having to pay tax on the interest;

• Receive tax-free education benefits from your employer; and

• Claim a business deduction for work-related education.

Note. You generally can't claim more than one of the 

benefits described in the list above for the same qualifying 

education expense.

Comparison table. Some of the features of these 

benefits are highlighted in Appendix B, later, in this publication. This general comparison table may guide you in 

determining which benefits you may be eligible for and 

which chapters you may want to read.

When you figure your taxes, you may want to 

compare these tax benefits so you can choose 

the method(s) that gives you the lowest tax liability. If you qualify, you may find that a combination of 

credit(s) and deduction(s) gives you the lowest tax.

Analyzing your tax withholding. After you estimate 

your education tax benefits for the year, you may be able 

to reduce the amount of your federal income tax withholding. Also, you may want to recheck your withholding during the year if your personal or financial situation changes. 

For more information, see Pub. 505, Tax Withholding and 

Estimated Tax.

Glossary. In this publication, wherever appropriate, we 

have tried to use the same or similar terminology when referring to the basic components of each education benefit. 

Some of the terms used are:

• Qualified education expenses,

• Eligible educational institution, and

• Modified adjusted gross income.

Even though the same term, such as qualified education expenses, is used to label a basic component of 

many of the education benefits, the same expenses aren't 

necessarily allowed for each benefit. For example, the 

cost of room and board is a qualified education expense 

TIP

for the qualified tuition program, but not for the education 

savings bond program.

Many of the terms used in the publication are defined in 

the glossary near the end of the publication. The glossary 

isn't intended to be a substitute for reading the chapter on 

a particular education benefit, but it will give you an overview of how certain terms are used in discussing the different benefits.

Comments and suggestions. We welcome your comments about this publication and your suggestions for future editions.

You can send us comments through IRS.gov/

FormComments. Or, you can write to the Internal Revenue Service, Tax Forms and Publications, 1111 Constitution Ave. NW, IR-6526, Washington, DC 20224.

Although we can’t respond individually to each comment received, we do appreciate your feedback and will 

consider your comments and suggestions as we revise 

our tax forms, instructions, and publications. Don’t send 

tax questions, tax returns, or payments to the above address.

Getting answers to your tax questions. If you have 

a tax question not answered by this publication or the How 

To Get Tax Help section at the end of this publication, go 

to the IRS Interactive Tax Assistant page at IRS.gov/

Help/ITA where you can find topics by using the search 

feature or viewing the categories listed.

Getting tax forms, instructions, and publications. 

Go to IRS.gov/Forms to download current and prior-year 

forms, instructions, and publications.

Ordering tax forms, instructions, and publications. 

Go to IRS.gov/OrderForms to order current forms, instructions, and publications; call 800-829-3676 to order 

prior-year forms and instructions. The IRS will process 

your order for forms and publications as soon as possible. 

Don’t resubmit requests you’ve already sent us. You can 

get forms and publications faster online.

Useful Items

You may want to see:

Publication

463 Travel, Gift, and Car Expenses

2 Taxable and Nontaxable Income

0 Investment Income and Expenses

90-A Contributions to Individual Retirement 

Arrangements (IRAs)

90-B Distributions from Individual Retirement 

Arrangements (IRAs)

Form (and Instructions)

1040 U.S. Individual Income Tax Return

1040-NR U.S. Nonresident Alien Income Tax Return

1040-SR U.S. Tax Return for Seniors

2106 Employee Business Expenses

 463

 525

 550

 590-A

 590-B

 1040

 1040-NR

 1040-SR

 2106

Page 4 Publication 970 (2021)
Additional Taxes on Qualified Plans (Including 

IRAs) and Other Tax-Favored Accounts

Exclusion of Interest From Series EE and I 

U.S. Savings Bonds Issued After 1989

Education Credits

Tuition and Fees Deduction

See chapter 12 for information about getting these publications and forms.

1.

Scholarships, Fellowship 

Grants, Grants, and 

Tuition Reductions

What’s New

Individual retirement arrangements (IRAs). You can 

set up and make contributions to an IRA if you receive taxable compensation. A scholarship or fellowship grant is 

generally taxable compensation only if it is shown in box 1 

of your Form W-2, Wage and Tax Statement. However, 

for tax years beginning after 2019, certain non-tuition fellowship and stipend payments not reported to you on 

Form W-2 are treated as taxable compensation for IRA 

purposes. These include amounts paid to you to aid you in 

the pursuit of graduate or postdoctoral study and included 

in your gross income under the rules discussed in this 

chapter. Taxable amounts not reported to you on Form 

W-2 are generally included in gross income as discussed 

later under Reporting Scholarships and Fellowship 

Grants. For more information about IRAs, see Pub. 590-A 

and Pub. 590-B.

Higher education emergency grants. Emergency financial aid grants under the following are not included in 

your gross income.

• The CARES Act.

• The Coronavirus Response and Relief Supplemental 

Appropriations Act, 2021.

• The American Rescue Plan Act of 2021.

Also, for purposes of the American opportunity tax 

credit (see chapter 2) and lifetime learning credit (see 

chapter 3), a student does not reduce an amount of qualified tuition and related expenses by the amount of an 

emergency financial aid grant. For more information, see 

 5329

 8815

 8863

 8917

Higher Education Emergency Grants Frequently Asked 

Questions.

Introduction

This chapter discusses the income tax treatment of various types of educational assistance you may receive if 

you are studying, teaching, or researching in the United 

States. The educational assistance can be for a primary or 

secondary school, a college or university, or a vocational 

school. Included are discussions of:

• Scholarships;

• Fellowship grants;

• Need-based education grants, such as a Pell grant; 

and

• Qualified tuition reductions.

Many types of educational assistance are tax free if they 

meet the requirements discussed here.

Special rules apply to U.S. citizens and resident aliens 

who have received scholarships or fellowship grants for 

studying, teaching, or researching abroad. For information 

about these rules, see Pub. 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.

Scholarships and Fellowship 

Grants

A scholarship is generally an amount paid or allowed to, 

or for the benefit of, a student (whether an undergraduate 

or a graduate) at an educational institution to aid in the 

pursuit of his or her studies.

A fellowship grant is generally an amount paid for the 

benefit of an individual to aid in the pursuit of study or research.

Amount of scholarship or fellowship grant. The 

amount of a scholarship or fellowship grant includes the 

following.

• The value of contributed services and accommodations. This includes such services and accommodations as room (lodging), board (meals), laundry service, and similar services or accommodations that are 

received by an individual as a part of a scholarship or 

fellowship grant.

• The amount of tuition, matriculation, and other fees 

that are paid for or remitted to the student to aid the 

student in pursuing study or research.

• Any amount received in the nature of a family allowance as a part of a scholarship or fellowship grant.

Chapter 1 Scholarships, Fellowship Grants, Grants, and Tuition Reductions Page 5
Tax-Free Scholarships and 

Fellowship Grants

A scholarship or fellowship grant is tax free (excludable 

from gross income) only if you are a candidate for a degree at an eligible educational institution.

You may be able to increase the combined value 

of an education credit and certain educational assistance if the student includes some or all of the 

educational assistance in income in the year it is received. 

See the examples underCoordination with Pell grants and 

other scholarships in chapter 2 and chapter 3.

A scholarship or fellowship grant is tax free only to the 

extent:

• It doesn't exceed your qualified education expenses;

• It isn't designated or earmarked for other purposes 

(such as room and board), and doesn't require (by its 

terms) that it can't be used for qualified education expenses; and

• It doesn't represent payment for teaching, research, or 

other services required as a condition for receiving the 

scholarship. For exceptions, see Payment for services, later.

Use Worksheet 1-1 to figure the amount of a scholarship or fellowship grant you can exclude from gross income.

Candidate for a degree. You are a candidate for a degree if you:

1. Attend a primary or secondary school or are pursuing 

a degree at a college or university; or

2. Attend an educational institution that:

a. Provides a program that is acceptable for full 

credit toward a bachelor's or higher degree, or offers a program of training to prepare students for 

gainful employment in a recognized occupation; 

and

b. Is authorized under federal or state law to provide 

such a program and is accredited by a nationally 

recognized accreditation agency.

Eligible educational institution. An eligible educational 

institution is one whose primary function is the presentation of formal instruction and that normally maintains a 

regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place 

where it regularly carries on its educational activities.

Qualified education expenses. For purposes of 

tax-free scholarships and fellowship grants, these are expenses for:

• Tuition and fees required to enroll at or attend an eligible educational institution; and

• Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses 

at the eligible educational institution. These items 

TIP

must be required of all students in your course of instruction.

Expenses that don't qualify. Qualified education expenses don't include the cost of:

• Room and board,

• Travel,

• Research,

• Clerical help, or

• Equipment and other expenses that aren't required for 

enrollment in or attendance at an eligible educational 

institution.

Payment for services. Generally, you can't exclude 

from your gross income the part of any scholarship or fellowship grant that represents payment for teaching, research, or other services required as a condition for receiving the scholarship. This applies even if all candidates 

for a degree must perform the services to receive the degree. However, see Exceptions next.

Exceptions. You don't have to treat as payment for 

services the part of any scholarship or fellowship grant 

that represents payment for teaching, research, or other 

services if you receive the amount under:

• The National Health Service Corps Scholarship Program,

• The Armed Forces Health Professions Scholarship 

and Financial Assistance Program, or

• A comprehensive student work-learning-service program (as defined in section 448(e) of the Higher Education Act of 1965) operated by a work college (as defined in that section).

Example 1. You received a scholarship of $2,500. The 

scholarship wasn't received under any of the exceptions 

mentioned above. As a condition for receiving the scholarship, you must serve as a part-time teaching assistant. Of 

the $2,500 scholarship, $1,000 represents payment for 

teaching. The provider of your scholarship gives you a 

Form W-2 showing $1,000 as income. Your qualified education expenses were at least $1,500. Assuming that all 

other conditions are met, the most you can exclude from 

your gross income is $1,500. The $1,000 you received for 

teaching must be included in your gross income.

Example 2. You are a candidate for a degree at a 

medical school. You receive a scholarship (not under any 

of the exceptions mentioned above) for your medical education and training. The terms of your scholarship require 

you to perform future services. A substantial penalty applies if you don't comply. The entire amount of your grant 

is taxable as payment for services in the year it is received.

Athletic Scholarships

An athletic scholarship is tax free only if and to the extent 

it meets the requirements discussed earlier. 

Page 6 Chapter 1 Scholarships, Fellowship Grants, Grants, and Tuition Reductions
Worksheet 1-1. You can use Worksheet 1-1 to figure the 

tax-free and taxable parts of your athletic scholarship.

Taxable Scholarships and Fellowship 

Grants

If and to the extent your scholarship or fellowship grant 

doesn't meet the requirements described earlier, it is taxable and must be included in gross income. You can use 

Worksheet 1-1 to figure the tax-free and taxable parts of 

your scholarship or fellowship grant.

Reporting Scholarships and 

Fellowship Grants

Whether you must report your scholarship or fellowship 

grant depends on whether you must file a return and 

whether any part of your scholarship or fellowship grant is 

taxable.

If your only income is a completely tax-free scholarship 

or fellowship grant, you don't have to file a tax return and 

no reporting is necessary. If all or part of your scholarship 

or fellowship grant is taxable and you are required to file a 

tax return, report the taxable amount as explained below. 

You must report the taxable amount whether or not you received a Form W-2. If you receive an incorrect Form W-2, 

ask the payer for a corrected one.

For information on whether you must file a return, see 

Pub. 501, Dependents, Standard Deduction, and Filing Information, or your income tax form instructions.

How To Report

How you report any taxable scholarship or fellowship 

grant income depends on which return you file.

Form 1040 or 1040-SR. If you file Form 1040 or 

1040-SR, include the taxable amount in the total on line 1. 

If the taxable amount was not reported on Form W-2, also 

enter “SCH” and the taxable amount on the dotted line 

next to line 1.

Form 1040-NR. If you file Form 1040-NR, report the taxable amount on line 1b. Generally, you must report the 

amount shown in box 2 of Form(s) 1042-S, Foreign Person's U.S. Source Income Subject to Withholding. See the 

Instructions for Form 1040-NR for more information.

Other Types of

Educational Assistance

The following discussions deal with other common types 

of educational assistance.

Fulbright Grants

A Fulbright grant is generally treated as a scholarship or 

fellowship grant in figuring how much of the grant is tax 

free.

Taxable Scholarship and

Fellowship Grant Income

Worksheet 1-1.

Keep for Your Records

1. Enter the total amount of any scholarship or fellowship grant for 2021. See Amount of 

scholarship or fellowship grant, earlier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.

• If you are a degree candidate at an eligible educational institution, go to line 2.

• If you aren't a degree candidate at an eligible educational institution, stop here. The 

entire amount is taxable. For information on how to report this amount on your tax return, 

see Reporting Scholarships and Fellowship Grants, later.

2. Enter the amount from line 1 that was for teaching, research, or any other services required 

as a condition for receiving the scholarship. Don't include amounts received for these items 

under the National Health Service Corps Scholarship Program, the Armed Forces Health 

Professions Scholarship and Financial Assistance Program, or a comprehensive student 

work-learning-service program (as defined in section 448(e) of the Higher Education Act of 

1965) operated by a work college (as defined in that section) .......................... 2.

3. Subtract line 2 from line 1 ....................................................... 3.

4. Enter the amount from line 3 that your scholarship or fellowship grant required you to use for 

other than qualified education expenses ........................................... 4.

5. Subtract line 4 from line 3 ....................................................... 5.

6. Enter the amount of your qualified education expenses ............................... 6.

7. Enter the smaller of line 5 or line 6. This amount is the most you can exclude from your gross 

income (the tax-free part of the scholarship or fellowship grant) ........................ 7.

8. Subtract line 7 from line 5 ....................................................... 8.

9. Taxable part. Add lines 2, 4, and 8. See Reporting Scholarships and Fellowship Grants, 

later, for how to report this amount on your tax return ................................. 9.

Chapter 1 Scholarships, Fellowship Grants, Grants, and Tuition Reductions Page 7
Pell Grants and Other Title IV 

Need-Based Education Grants

These need-based grants are treated as scholarships for 

purposes of determining their tax treatment. They are tax 

free to the extent used for qualified education expenses 

during the period for which a grant is awarded.

Payment to Service Academy Cadets

An appointment to a U.S. military academy isn't a scholarship or fellowship grant. Payment you receive as a cadet 

or midshipman at an armed services academy is pay for 

personal services and will be reported to you in box 1 of 

Form W-2. Include this pay in your income in the year you 

receive it.

Veterans' Benefits

Payments you receive for education, training, or subsistence under any law administered by the Department of 

Veterans Affairs (VA) are tax free. Don't include these 

payments as income on your federal tax return.

If you qualify for one or more of the education tax benefits discussed in chapters 2 through 11, you may have to 

reduce the amount of education expenses qualifying for a 

specific tax benefit by part or all of your VA payments. 

This applies only to the part of your VA payments that is 

required to be used for education expenses.

You may want to visit the Veterans Administration website at www.gibill.va.gov for specific information about the 

various VA benefits for education.

Example. You have returned to college and are receiving two education benefits under the latest GI Bill: (1) 

a $1,534 monthly basic housing allowance (BHA) that is 

directly deposited to your checking account, and (2) 

$3,840 paid directly to your college for tuition. Neither of 

these benefits is taxable and you don't report them on 

your tax return. You also want to claim an American opportunity credit on your return. Your total tuition charges 

are $5,000. To figure the amount of credit, you must first 

subtract the $3,840 from your qualified education expenses because this payment under the GI Bill was required 

to be used for education expenses. You don't subtract 

any amount of the BHA because it was paid to you and its 

use wasn't restricted.

Qualified Tuition Reduction

If you are allowed to study tuition free or for a reduced rate 

of tuition, you may not have to pay tax on this benefit. This 

is called a “tuition reduction.” You don't have to include a 

qualified tuition reduction in your income.

A tuition reduction is qualified only if you receive it from, 

and use it at, an eligible educational institution. You don't 

have to use the tuition reduction at the eligible educational 

institution from which you received it. In other words, if you 

work for an eligible educational institution and the 

institution arranges for you to take courses at another eligible educational institution without paying any tuition, you 

may not have to include the value of the free courses in 

your income.

The rules for determining if a tuition reduction is qualified, and therefore tax free, are different if the education 

provided is below the graduate level or is graduate education.

You must include in your income any tuition reduction 

you receive that is payment for your services.

Eligible educational institution. An eligible educational 

institution is one that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it regularly carries 

on its educational activities.

Officers, owners, and highly compensated employees. Qualified tuition reductions apply to officers, owners, 

or highly compensated employees only if benefits are 

available to employees on a nondiscriminatory basis. This 

means that the tuition reduction benefits must be available 

on substantially the same basis to each member of a 

group of employees. The group must be defined under a 

reasonable classification set up by the employer. The 

classification must not discriminate in favor of owners, officers, or highly compensated employees.

Payment for services. Generally, you must include in income the part of any qualified tuition reduction that represents payment for teaching, research, or other services by 

the student required as a condition of receiving the qualified tuition reduction. This applies even if all candidates 

for a degree must perform the services to receive the degree. However, see Exceptions next.

Exceptions. You don't have to include in income the 

part of any scholarship or fellowship grant that represents 

payment for teaching, research, or other services if you 

receive the amount under:

• The National Health Service Corps Scholarship Program,

• The Armed Forces Health Professions Scholarship 

and Financial Assistance Program, or

• A comprehensive student work-learning-service program (as defined in section 448(e) of the Higher Education Act of 1965) operated by a work college (as defined in that section).

Education Below the Graduate Level

If you receive a tuition reduction for education below the 

graduate level (including primary and secondary school), 

it is a qualified tuition reduction, and therefore tax free, 

only if your relationship to the educational institution providing the benefit is described below.

1. You are an employee of the eligible educational institution.

2. You were an employee of the eligible educational institution, but you retired or left on disability.

Page 8 Chapter 1 Scholarships, Fellowship Grants, Grants, and Tuition Reductions
3. You are a widow or widower of an individual who died 

while an employee of the eligible educational institution or who retired or left on disability.

4. You are the dependent child or spouse of an individual described in (1) through (3) above.

Child of deceased parents. For purposes of the qualified tuition reduction, a child is a dependent child if the 

child is under age 25 and both parents have died.

Child of divorced parents. For purposes of the qualified tuition reduction, a dependent child of divorced parents is treated as the dependent of both parents.

Graduate Education

A tuition reduction you receive for graduate education is 

qualified, and therefore tax free, if both of the following requirements are met.

• It is provided by an eligible educational institution.

• You are a graduate student who performs teaching or 

research activities for the educational institution.

You must include in income any other tuition reductions 

for graduate education that you receive.

How To Report

Any tuition reduction that is taxable should be included as 

wages in box 1 of your Form W-2. Report the amount from 

box 1 of Form W-2 on Form 1040 or 1040-SR, line 1.

2.

American Opportunity 

Credit

Reminders

Educational institution's EIN required. To claim the 

American opportunity credit, you must provide the educational institution's employer identification number (EIN) on 

your Form 8863. You should be able to obtain this information from Form 1098-T or the educational institution.

Form 8862 may be required. If your American opportunity credit was denied or reduced for any reason other 

than a math or clerical error for any tax year beginning after 2015, you must attach a completed Form 8862, Information To Claim Certain Credits After Disallowance, to 

your tax return for the next year for which you claim the 

credit. See Form 8862 and its instructions for details.

Form 1098-T requirement. To be eligible to claim the 

American opportunity credit, the law requires a taxpayer 

(or a dependent) to have received Form 1098-T, Tuition 

Statement, from an eligible educational institution, 

whether domestic or foreign.

However, you may claim the credit if the student 

doesn't receive a Form 1098-T because the student's educational institution isn't required to furnish a Form 1098-T 

to the student under existing rules (for example, if the student is a qualified nonresident alien, has qualified education expenses paid entirely with scholarships, has qualified education expenses paid under a formal billing 

arrangement, or is enrolled in courses for which no academic credit is awarded). If a student's educational institution isn't required to provide a Form 1098-T to the student, 

you may claim the credit without a Form 1098-T if you otherwise qualify, can demonstrate that you (or a dependent) 

were enrolled at an eligible educational institution, and 

can substantiate the payment of qualified tuition and related expenses.

You may also claim a credit if the student attended an 

eligible educational institution required to furnish Form 

1098-T but the student doesn't receive Form 1098-T before you file your tax return (for example, if the institution is 

otherwise required to furnish the Form 1098-T and doesn't 

furnish it or refuses to do so) and you take the following 

required steps: After January 31, 2022, but before you file 

your 2021 tax return, you or the student must request that 

the educational institution furnish a Form 1098-T. You 

must fully cooperate with the educational institution's efforts to gather the information needed to furnish the Form 

1098-T. You must also otherwise qualify for the benefit, be 

able to demonstrate that you (or a dependent) were enrolled at an eligible educational institution, and substantiate 

the payment of qualified tuition and related expenses.

Ban on claiming the American opportunity credit. If 

you claim the American opportunity credit even though 

you're not eligible, you may be banned from claiming the 

credit for 2 or 10 years depending on your conduct. See 

Caution under Introduction below.

Taxpayer identification number (TIN) needed by due 

date of return. If you haven't been issued a TIN by the 

due date of your 2021 return (including extensions), you 

can't claim the American opportunity credit on either your 

original or an amended 2021 return. Also, the American 

opportunity credit isn't allowed on either your original or an 

amended 2021 return for a student who hasn't been issued a TIN by the due date of your return (including extensions).

Introduction

For 2021, there are two tax credits available to help you 

offset the costs of higher education by reducing the 

amount of your income tax. They are the American opportunity credit (this chapter) and the lifetime learning credit 

(chapter 3).

This chapter explains:

• Who can claim the American opportunity credit,

• What expenses qualify for the credit,

Chapter 2 American Opportunity Credit Page 9
• Who is an eligible student,

• Who can claim a dependent's expenses,

• How to figure the credit,

• How to claim the credit, and

• When the credit must be repaid.

What is the tax benefit of the American opportunity 

credit? For 2021, you may be able to claim a credit of up 

to $2,500 for adjusted qualified education expenses paid 

for each student who qualifies for the American opportunity credit.

A tax credit reduces the amount of income tax you may 

have to pay. Unlike a deduction, which reduces the 

amount of income subject to tax, a credit directly reduces 

the tax itself. Forty percent of the American opportunity 

credit may be refundable. This means that if the refundable portion of your credit is more than your tax, the excess 

will be refunded to you.

Your allowable American opportunity credit may be 

limited by the amount of your income. Also, the nonrefundable part of the credit may be limited by the amount of 

your tax.

Overview of the American opportunity credit for 

2021. See Table 2-1 for the basics of this credit. The details are discussed in this chapter.

Can you claim more than one education credit this 

year? For each student, you can elect for any year only 

one of the credits. For example, if you elect to claim the 

American opportunity credit for a dependent on your 2021 

tax return, you can't use that same dependent's qualified 

education expenses to figure the lifetime learning credit 

for 2021.

If you pay qualified education expenses for more than 

one student in the same year, you can choose to claim the 

American opportunity credit on a per-student, per-year basis. If you pay qualified education expenses for a student 

(or students) for whom you don't claim the American opportunity credit, you can use the adjusted qualified education expenses of that student (or those students) in figuring your lifetime learning credit. This means that, for 

example, you can claim the American opportunity credit 

for one student and the lifetime learning credit for another 

student in the same year.

Differences between the American opportunity and 

lifetime learning credits. There are several differences 

between these two credits. For example, you can claim 

the American opportunity credit based on the same student's expenses for no more than 4 tax years. However, 

there is no limit on the number of years for which you can 

claim a lifetime learning credit based on the same student's expenses. The differences between these credits 

are shown in Appendix B near the end of this publication.

If you claim the American opportunity credit for 

any student, you can choose between using that 

student's adjusted qualified education expenses 

for the American opportunity credit or the lifetime learning 

credit. If you have the choice, the American opportunity 

credit will always be greater than the lifetime learning 

credit.

Form 8862 may be required. If your American opportunity credit was denied or reduced for any reason other 

than a math or clerical error for any tax year beginning after 2015, you must attach a completed Form 8862 to your 

tax return for the next tax year for which you claim the 

credit. See Form 8862 and its instructions for details.

Don't claim the American opportunity credit for 2 

years after there was a final determination that 

your claim was due to reckless or intentional disregard of the rules, or 10 years after there was a final determination that your claim was due to fraud.

TIP

CAUTION

!

Page 10 Chapter 2 American Opportunity Credit
Table 2-1. Overview of the American Opportunity Credit for 2021

Maximum credit Up to $2,500 credit per eligible student

Limit on modified adjusted gross income 

(MAGI)

$180,000 if married filing jointly; $90,000 if single, head of household, or qualifying 

widow(er)

Refundable or nonrefundable 40% of credit may be refundable; the rest is nonrefundable

Number of years of postsecondary education Available ONLY if the student had not completed the first 4 years of postsecondary 

education before 2021 (generally, the freshman through senior years, determined by 

the eligible educational institution, not including academic credit awarded solely 

because of the student's performance on proficiency examinations)

Number of tax years credit available Available ONLY for 4 tax years per eligible student

Type of program required Student must be pursuing a program leading to a degree or other recognized 

education credential

Number of courses Student must be enrolled at least half-time for at least one academic period that 

begins during 2021 (or the first 3 months of 2022 if the qualified expenses were paid 

in 2021) 

Felony drug conviction As of the end of 2021, the student had not been convicted of a felony for possessing 

or distributing a controlled substance

Qualified expenses Tuition, required enrollment fees, and course materials that the student needs for a 

course of study whether or not the materials are bought at the educational institution 

as a condition of enrollment or attendance

Payments for academic periods Payments made in 2021 for academic periods beginning in 2021 or beginning in the 

first 3 months of 2022

TIN needed by filing due date Filers and students must have been issued a TIN by the due date of their 2021 return 

(including extensions)

Educational institution’s EIN You must provide the educational institution's employer identification number (EIN) on 

your Form 8863

Can You Claim the Credit?

The following rules will help you determine if you are eligible to claim the American opportunity credit on your tax 

return.

Who Can Claim the Credit?

Generally, you can claim the American opportunity credit 

if all three of the following requirements are met.

• You pay qualified education expenses of higher education.

• You pay the education expenses for an eligible student.

• The eligible student is either yourself, your spouse, or 

a dependent you claim on your tax return.

Note. Qualified education expenses paid by a dependent you claim on your tax return, or by a third party for that 

dependent, are considered paid by you.

Student qualifications. Generally, you can claim the 

American opportunity credit for a student only if all of the 

following four requirements are met.

1. As of the beginning of 2021, the student had not completed the first 4 years of postsecondary education 

(generally, the freshman through senior years of college), as determined by the eligible educational institution. For this purpose, don't include academic credit 

awarded solely because of the student's performance 

on proficiency examinations.

2. The American opportunity credit has not been 

claimed by you or anyone else (see below) for this 

student for any 4 tax years before 2021. If the American opportunity credit has been claimed for this student for any 3 or fewer tax years before 2021, this requirement is met.

3. For at least one academic period beginning (or treated as beginning) in 2021, the student both:

a. Was enrolled in a program that leads to a degree, 

certificate, or other recognized educational credential; and

b. Carried at least one-half the normal full-time workload for his or her course of study.

The standard for what is half of the normal 

full-time workload is determined by each eligible 

educational institution. However, the standard 

may not be lower than any of those established by 

the U.S. Department of Education under the 

Higher Education Act of 1965.

Chapter 2 American Opportunity Credit Page 11
For 2021, treat an academic period beginning 

in the first 3 months of 2022 as if it began in 2021 

if qualified education expenses for the student 

were paid in 2021 for that academic period. See 

Prepaid expenses, later.

4. As of the end of 2021, the student had not been convicted of a federal or state felony for possessing or 

distributing a controlled substance.

Example 1. Sharon was eligible for the American opportunity credit for 2015, 2016, 2018, and 2020. Her parents claimed the American opportunity credit for Sharon 

on their 2015, 2016, and 2018 tax returns. Sharon claimed 

the American opportunity credit on her 2020 tax return. 

The American opportunity credit has been claimed for 

Sharon for 4 tax years before 2021. Therefore, the American opportunity credit can't be claimed for Sharon for 

2021. If Sharon were to file Form 8863 for 2021, she 

would check “Yes” for Part III, line 23, and would be eligible to claim only the lifetime learning credit.

Example 2. Wilbert was eligible for the American opportunity credit for 2017, 2018, 2019, and 2021. His parents claimed the American opportunity credit for Wilbert 

on their tax returns for 2017, 2018, and 2019. No one 

claimed an American opportunity credit for Wilbert for any 

other tax year. The American opportunity credit has been 

claimed for Wilbert for only 3 tax years before 2021. 

Therefore, Wilbert meets the second requirement to be eligible for the American opportunity credit. If Wilbert were 

to file Form 8863 for 2021, he would check “No” for Part 

III, line 23. If Wilbert meets all of the other requirements, 

he is eligible for the American opportunity credit.

Example 3. Glenda enrolls on a full-time basis in a degree program for the 2022 spring semester, which begins 

in January 2022. Glenda pays her tuition for the 2022 

spring semester in December 2021. Because the tuition 

Glenda paid in 2021 relates to an academic period that 

begins in the first 3 months of 2022, her eligibility to claim 

an American opportunity credit in 2021 is determined as if 

the 2022 spring semester began in 2021. Therefore, 

Glenda satisfies this third requirement.

If the requirements above aren't met for any student, you can't claim the American opportunity 

credit for that student. You may be able to claim 

the lifetime learning credit for part or all of that student's 

qualified education expenses instead.

“Qualified education expenses” are defined later under 

Qualified Education Expenses. “Eligible students” are defined later under Who Is an Eligible Student. A dependent 

you claim on your tax return is defined later under Who 

Can Claim a Dependent's Expenses.

You may find Figure 2-1 helpful in determining if you 

can claim an American opportunity credit on your tax return.

TIP

Who Can't Claim the Credit?

You can't claim the American opportunity credit for 2021 if 

any of the following apply.

• Your filing status is married filing separately.

• You are claimed as a dependent on another person's 

tax return, such as your parent's return. See Who Can 

Claim a Dependent's Expenses, later.

• Your modified adjusted gross income (MAGI) is 

$90,000 or more ($180,000 or more if married filing 

jointly). MAGI is explained later under Effect of the 

Amount of Your Income on the Amount of Your Credit.

• You (or your spouse) were a nonresident alien for any 

part of 2021 and the nonresident alien didn't elect to 

be treated as a resident alien for tax purposes. More 

information on nonresident aliens can be found in 

Pub. 519, U.S. Tax Guide for Aliens.

• You weren’t issued an SSN (or ITIN) by the due date 

of your 2021 return (including extensions). You can't 

claim the American opportunity credit on either your 

original or an amended 2021 return. Also, you can't 

claim this credit on your original or an amended 2021 

return for a student who wasn’t issued an SSN, ATIN, 

or ITIN by the due date of your return (including extensions). If an ATIN or ITIN is applied for on or before 

the due date of a 2021 return (including extensions) 

and the IRS issues an ATIN or ITIN as a result of the 

application, the IRS will consider the ATIN or ITIN as 

issued on or before the due date of the return.

What Expenses Qualify?

The American opportunity credit is based on adjusted 

qualified education expenses you pay for yourself, your 

spouse, or a dependent you claim on your tax return. Generally, the credit is allowed for adjusted qualified education expenses paid in 2021 for an academic period beginning in 2021 or beginning in the first 3 months of 2022.

For example, if you paid $1,500 in December 2021 for 

qualified tuition for the spring 2022 semester beginning 

January 2022, you can use that $1,500 in figuring your 

2021 credit.

Academic period. An academic period includes a semester, trimester, quarter, or other period of study (such 

as a summer school session) as reasonably determined 

by an educational institution. If an educational institution 

uses credit hours or clock hours and doesn't have academic terms, each payment period can be treated as an 

academic period. 

Paid with borrowed funds. You can claim an American 

opportunity credit for qualified education expenses paid 

with the proceeds of a loan. Use the expenses to figure 

the American opportunity credit for the year in which the 

expenses are paid, not the year in which the loan is 

Page 12 Chapter 2 American Opportunity Credit
repaid. Treat loan payments sent directly to the educational institution as paid on the date the institution credits 

the student's account.

Student withdraws from class(es). You can claim an 

American opportunity credit for qualified education expenses not refunded when a student withdraws.

Qualified Education Expenses

For purposes of the American opportunity credit, qualified 

education expenses are tuition and certain related expenses required for enrollment or attendance at an eligible 

educational institution.

Eligible educational institution. An eligible educational 

institution is generally any accredited public, nonprofit, or 

proprietary (privately owned profit-making) college, university, vocational school, or other postsecondary 

Figure 2-1. Can You Claim the American Opportunity Credit for 2021?

Yes

No

No

Yes

Yes

No

No

Yes

No

No

No

No

Yes

Yes

Yes

No

Yes

Yes

Yes

Did you pay qualied education expenses in 2021 for an eligible student?*

Did the academic period for which you paid qualied education 

expenses begin in 2021 or the rst 3 months of 2022?

No

Is the eligible student you, your spouse (if married ling jointly), or your 

dependent you claim on your tax return?

Are you listed as a dependent on another person’s tax return?

Is your ling status married ling separately?

For any part of 2021, were you (or your spouse) a nonresident alien 

who didn’t elect to be treated as a resident alien for tax purposes?

Is your modied adjusted gross income (MAGI) less than $90,000 

($180,000 if married ling jointly)?

Did you use the same expenses to claim a deduction or credit?

Were the same expenses paid entirely with a tax-free scholarship, grant, or 

employer-provided educational assistance?

Did you or someone else receive a refund of all the expenses?

You can claim 

the American 

opportunity credit 

for 2021.**

*Qualified education expenses paid by a dependent you claim on your tax return, or by a third party for that dependent, are considered 

paid by you.

**Your education credits may be limited to your tax liability minus certain credits. See Form 8863 for more details.

You can’t

claim the American

opportunity credit

for 2021.

Chapter 2 American Opportunity Credit Page 13
educational institution. Also, the institution must be eligible 

to participate in a student aid program administered by the 

U.S. Department of Education. Virtually all accredited 

postsecondary institutions meet this definition.

An eligible educational institution also includes certain 

educational institutions located outside the United States 

that are eligible to participate in a student aid program administered by the U.S. Department of Education.

The educational institution should be able to tell 

you if it is an eligible educational institution.

Related expenses. Student activity fees are included in 

qualified education expenses only if the fees must be paid 

to the institution as a condition of enrollment or attendance.

However, expenses for books, supplies, and equipment needed for a course of study are included in qualified education expenses whether or not the materials are 

purchased from the educational institution.

Prepaid expenses. Qualified education expenses paid 

in 2021 for an academic period that begins in the first 3 

months of 2022 can be used in figuring an education 

credit for 2021 only. See Academic period, earlier. For example, if you pay $2,000 in December 2021 for qualified 

tuition for the 2022 winter quarter that begins in January 

2022, you can use that $2,000 in figuring an education 

credit for 2021 only (if you meet all the other requirements).

You can't use any amount you paid in 2020 or 

2022 to figure the qualified education expenses 

you use to figure your 2021 education credit(s).

In the following examples, assume that each student is 

an eligible student at an eligible educational institution.

Example 1. Jefferson is a sophomore in University V's 

degree program in dentistry. This year, in addition to tuition, he is required to pay a fee to the university for the 

rental of the dental equipment he will use in this program. 

Because the equipment rental is needed for his course of 

study, Jefferson's equipment rental fee is a qualified expense.

Example 2. Grace and William, both first-year students at College W, are required to have certain books 

and other reading materials to use in their mandatory 

first-year classes. The college has no policy about how 

students should obtain these materials, but any student 

who purchases them from College W's bookstore will receive a bill directly from the college. William bought his 

books from a friend; Grace bought hers at College W's 

bookstore. Both are qualified education expenses for the 

American opportunity credit.

Example 3. When Kelly enrolled at College X for her 

freshman year, she had to pay a separate student activity 

fee in addition to her tuition. This activity fee is required of 

all students, and is used solely to fund on-campus organizations and activities run by students, such as the student 

newspaper and the student government. No portion of the 

TIP

CAUTION

!

fee covers personal expenses. Although labeled as a student activity fee, the fee is required for Kelly's enrollment 

and attendance at College X and is a qualified expense.

No Double Benefit Allowed

You can't do any of the following.

• Deduct higher education expenses on your income 

tax return (as, for example, a business expense) and 

also claim an American opportunity credit based on 

those same expenses.

• Claim an American opportunity credit for any student 

and use any of that student's expenses in figuring your 

lifetime learning credit.

• Figure the tax-free portion of a distribution from a Coverdell education savings account (ESA) or qualified 

tuition program (QTP) using the same expenses you 

used to figure the American opportunity credit. See 

Coordination With American Opportunity and Lifetime 

Learning Credits in chapter 6 and Coordination With 

American Opportunity and Lifetime Learning Credits in 

chapter 7.

• Claim a credit based on qualified education expenses 

paid with tax-free educational assistance, such as a 

scholarship, grant, or assistance provided by an employer. See Adjustments to Qualified Education Expenses next.

Adjustments to Qualified Education 

Expenses

For each student, reduce the qualified education expenses paid by or on behalf of that student under the following rules. The result is the amount of adjusted qualified 

education expenses for each student.

Tax-free educational assistance. For tax-free educational assistance received in 2021, reduce the qualified 

educational expenses for each academic period by the 

amount of tax-free educational assistance allocable to that 

academic period. See Academic period, earlier.

Some tax-free educational assistance received after 

2021 may be treated as a refund of qualified education expenses paid in 2021. This tax-free educational assistance 

is any tax-free educational assistance received by you or 

anyone else after 2021 for qualified education expenses 

paid on behalf of a student in 2021 (or attributable to enrollment at an eligible educational institution during 2021).

If this tax-free educational assistance is received after 

2021 but before you file your 2021 income tax return, see 

Refunds received after 2021 but before your income tax 

return is filed, later. If this tax-free educational assistance 

is received after 2021 and after you file your 2021 income 

tax return, see Refunds received after 2021 and after your 

income tax return is filed, later.

Tax-free educational assistance includes:

• The tax-free parts of scholarships and fellowship 

grants (see Tax-Free Scholarships and Fellowship 

Grants in chapter 1);

Page 14 Chapter 2 American Opportunity Credit
• The tax-free part of Pell grants (see Pell Grants and 

Other Title IV Need-Based Education Grants in chapter 1);

• Employer-provided educational assistance (see chapter 10);

• Veterans' educational assistance (see Veterans' Benefits in chapter 1); and

• Any other nontaxable (tax-free) payments (other than 

gifts or inheritances) received as educational assistance.

Generally, any scholarship or fellowship grant is treated 

as tax free. However, a scholarship or fellowship grant 

isn't treated as tax free to the extent the student includes it 

in gross income (the student may or may not be required 

to file a tax return for the year the scholarship or fellowship 

grant is received) and either of the following is true.

• The scholarship or fellowship grant (or any part of it) 

must be applied (by its terms) to expenses (such as 

room and board) other than qualified education expenses as defined in Qualified education expenses in 

chapter 1.

• The scholarship or fellowship grant (or any part of it) 

may be applied (by its terms) to expenses (such as 

room and board) other than qualified education expenses as defined in Qualified education expenses in 

chapter 1.

A student can't choose to include in income a 

scholarship or fellowship grant provided by an Indian tribal government that is excluded from income under the Tribal General Welfare Exclusion Act of 

2014 or benefits provided by an educational program described in Revenue Procedure 2014-35, section 5.02(2)

(b)(ii), available at IRS.gov/irb/2014-26_IRB#RP-2014-35.

You may be able to increase the combined value 

of an education credit if the student includes 

some or all of a scholarship or fellowship grant in 

income in the year it is received. For examples, see Coordination with Pell grants and other scholarships, later.

Refunds. A refund of qualified education expenses may 

reduce adjusted qualified education expenses for the tax 

year or require repayment (recapture) of a credit claimed 

in an earlier year. Some tax-free educational assistance 

received after 2021 may be treated as a refund. See 

Tax-free educational assistance, earlier.

Refunds received in 2021. For each student, figure 

the adjusted qualified education expenses for 2021 by 

adding all the qualified education expenses for 2021 and 

subtracting any refunds of those expenses received from 

the eligible educational institution during 2021.

Refunds received after 2021 but before your income tax return is filed. If anyone receives a refund after 2021 of qualified education expenses paid on behalf of 

a student in 2021 and the refund is paid before you file an 

CAUTION

!

TIP

income tax return for 2021, the amount of qualified education expenses for 2021 is reduced by the amount of the 

refund.

Refunds received after 2021 and after your income 

tax return is filed. If anyone receives a refund after 2021 

of qualified education expenses paid on behalf of a student in 2021 and the refund is paid after you file an income tax return for 2021, you may need to repay some or 

all of the credit. See Credit recapture next.

Credit recapture. If any tax-free educational assistance 

for the qualified education expenses paid in 2021, or any 

refund of your qualified education expenses paid in 2021, 

is received after you file your 2021 income tax return, you 

must recapture (repay) any excess credit. You do this by 

refiguring the amount of your adjusted qualified education 

expenses for 2021 by reducing the expenses by the 

amount of the refund or tax-free educational assistance. 

You then refigure your education credit(s) for 2021 and 

figure the amount by which your 2021 tax liability would 

have increased if you claimed the refigured credit(s). Include that amount as an additional tax for the year the refund or tax-free assistance was received.

Example. You paid $7,000 tuition and fees in August 

2021, and your child began college in September 2021. 

You filed your 2021 tax return on February 17, 2022, and 

claimed an American opportunity credit of $2,500. After 

you filed your return, you received a refund of $4,000. You 

must refigure your 2021 American opportunity credit using 

$3,000 of qualified education expenses instead of $7,000. 

The refigured credit is $2,250. The increase to your tax liability is $250. Include the difference of $250 as additional 

tax on your 2022 tax return. See the instructions for your 

2022 income tax return to determine where to include this 

tax.

If you pay qualified education expenses in both 

2021 and 2022 for an academic period that begins in the first 3 months of 2022 and you receive 

tax-free educational assistance, or a refund, as described 

above, you may choose to reduce your qualified education expenses for 2022 instead of reducing your expenses 

for 2021.

Amounts that don't reduce qualified education expenses. Don't reduce qualified education expenses by 

amounts paid with funds the student receives as:

• Payment for services, such as wages;

• A loan;

• A gift;

• An inheritance; or

• A withdrawal from the student's personal savings.

Don't reduce the qualified education expenses by any 

scholarship or fellowship grant reported as income on the 

student's tax return in the following situations.

• The use of the money is restricted, by the terms of the 

scholarship or fellowship grant, to costs of attendance 

(such as room and board) other than qualified 

TIP

Chapter 2 American Opportunity Credit Page 15
education expenses as defined in Qualified education 

expenses in chapter 1.

• The use of the money isn't restricted.

Example 1. Joan paid $3,000 for tuition and $5,000 

for room and board at University X. The university did not 

require her to pay any fees in addition to her tuition in order to enroll in or attend classes. To help pay these costs, 

she was awarded a $2,000 scholarship and a $4,000 student loan. The terms of the scholarship state that it can be 

used to pay any of Joan's college expenses.

University X applies the $2,000 scholarship against 

Joan's $8,000 total bill, and Joan pays the $6,000 balance 

of her bill from University X with a combination of her student loan and her savings. Joan doesn't report any portion 

of the scholarship as income on her tax return.

In figuring the amount of either education credit (American opportunity or lifetime learning), Joan must reduce 

her qualified education expenses by the amount of the 

scholarship ($2,000) because she excluded the entire 

scholarship from her income. The student loan isn't 

tax-free educational assistance, so she doesn't need to 

reduce her qualified expenses by any part of the loan proceeds. Joan is treated as having paid $1,000 in qualified 

education expenses ($3,000 tuition − $2,000 scholarship).

Example 2. The facts are the same as in Example 1, 

except that Joan reports her entire scholarship as income 

on her tax return. Because Joan reported the entire 

$2,000 scholarship in her income, she doesn't need to reduce her qualified education expenses. Joan is treated as 

having paid $3,000 in qualified education expenses.

Coordination with Pell grants and other scholarships. You may be able to increase your American opportunity credit when the student (you, your spouse, or 

your dependent) includes certain scholarships or fellowship grants in the student's gross income. Your credit may 

increase only if the amount of the student's qualified education expenses minus the total amount of scholarships 

and fellowship grants is less than $4,000. If this situation 

applies, consider including some or all of the scholarship 

or fellowship grant in the student's income in order to treat 

the included amount as paying nonqualified expenses instead of qualified education expenses. Nonqualified expenses are expenses such as room and board that aren't 

qualified education expenses such as tuition and related 

fees.

Scholarships and fellowship grants that the student includes in income don't reduce the student's qualified education expenses available to figure your American opportunity credit. Thus, including enough scholarship or 

fellowship grant in the student's income to report up to 

$4,000 in qualified education expenses for your American 

opportunity credit may increase the credit by enough to increase your tax refund or reduce the amount of tax you 

owe even considering any increased tax liability from the 

additional income. However, the increase in tax liability as 

well as the loss of other tax credits may be greater than 

the additional American opportunity credit and may cause 

your tax refund to decrease or the amount of tax you owe 

to increase. Your specific circumstances will determine 

what amount, if any, of scholarship or fellowship grant to 

include in income to maximize your tax refund or minimize 

the amount of tax you owe.

The scholarship or fellowship grant must be one that may 

qualify as a tax-free scholarship under the rules discussed 

in chapter 1. Also, the scholarship or fellowship grant must 

be one that may (by its terms) be used for nonqualified expenses. Finally, the amount of the scholarship or fellowship grant that is applied to nonqualified expenses can't 

exceed the amount of the student's actual nonqualified 

expenses that are paid in the tax year. This amount may 

differ from the student's living expenses estimated by the 

student's school in figuring the official cost of attendance 

under student aid rules.

The fact that the educational institution applies the 

scholarship or fellowship grant to qualified education expenses, such as tuition and related fees, doesn't prevent 

the student from choosing to apply certain scholarships or 

fellowship grants to the student’s actual nonqualified expenses. By making this choice (that is, by including the 

part of the scholarship or fellowship grant applied to the 

student’s nonqualified expenses in income), the student 

may increase taxable income and may be required to file 

a tax return. But this allows payments made in cash, by 

check, by credit or debit card, or with borrowed funds 

such as a student loan to be applied to qualified education 

expenses.

Example 1—No scholarship. Bill Pass, age 28 and 

unmarried, enrolled full-time in 2021 as a first-year student 

at a local college to earn a degree in law enforcement. 

This was his first year of postsecondary education. During 

2021, he paid $5,600 for his qualified education expenses 

and $4,400 for his room and board for the fall 2021 semester. He and the college meet all the requirements for 

the American opportunity credit. Bill's adjusted gross income (AGI) and his MAGI, for purposes of figuring his 

credit, are $35,050. Bill claims the standard deduction of 

$12,550, resulting in taxable income of $22,500 and an income tax liability before credits of $2,504. Bill claims no 

credits other than the American opportunity credit. He figures his American opportunity credit based on qualified 

education expenses of $4,000, which results in a credit of 

$2,500 and a tax liability after credits of $4 ($2,504 − 

$2,500).

Example 2—Scholarship excluded from income. 

The facts are the same as in Example 1—No scholarship, 

except that Bill was awarded a $5,600 scholarship. Under 

the terms of his scholarship, it may be used to pay any educational expenses, including room and board. If Bill excludes the scholarship from income, he will be deemed 

(for purposes of figuring his education credit) to have applied the scholarship to pay his tuition, required fees, and 

course materials. His adjusted qualified education expenses would be zero and he wouldn't have an education 

credit. Therefore, Bill's tax liability after credits would be 

$2,504.

Page 16 Chapter 2 American Opportunity Credit
Example 3—Scholarship partially included in income. The facts are the same as in Example 2—Scholarship excluded from income. If, unlike Example 2, Bill includes $4,000 of the scholarship in income, he will be 

deemed to have applied that amount to pay for room and 

board. The remaining $1,600 of the $5,600 scholarship 

would reduce his qualified education expenses, and his 

adjusted qualified education expenses would be $4,000. 

Bill's AGI and MAGI would increase to $39,050, his taxable income would increase to $26,500, and his tax liability 

before credits would increase to $2,984. Based on his adjusted qualified education expenses of $4,000, Bill would 

be able to claim an American opportunity credit of $2,500 

and his tax liability after credits would be $484 ($2,984 − 

$2,500).

Example 4—Scholarship applied by the postsecondary school to tuition. The facts are the same as in 

Example 3—Scholarship partially included in income, except the $5,600 scholarship is paid directly to the local 

college. The fact that the local college applies the scholarship to Bill's tuition and related fees doesn't prevent Bill 

from including $4,000 of the scholarship in income. As in 

Example 3, by doing so, he will be deemed to have applied $4,000 to pay for room and board. Bill would be able 

to claim the American opportunity credit of $2,500 and his 

tax liability after credits would be $484.

Example 5—Student with a dependent child. Jane 

Doe, age 28 and unmarried, enrolled full-time as a 

first-year student at a local technical college to get a certificate as a computer technician. This was her first year of 

postsecondary education. During 2021, she paid $6,000 

for qualified education expenses. She and the college 

meet all the requirements for the American opportunity 

credit. Jane has a dependent child, age 10, who is a qualifying child for purposes of receiving the earned income 

credit (EIC) and the child tax credit. Jane didn't receive 

any advance child tax credit payments for 2021. Jane's 

wages are $20,000. Jane withheld no income taxes on 

these wages and has no other income or adjustments. 

Jane was awarded a $5,500 scholarship. Under the terms 

of her scholarship, it may be used to pay tuition and any 

living expense, including rent. Jane paid $10,000 in living 

expenses in 2021.

If Jane excludes the entire scholarship from income, 

she will be deemed to have applied the entire scholarship 

to pay qualified education expenses. Her AGI and MAGI 

would be $20,000. Her tax liability before any credits 

would be $121. Her qualified education expenses would 

be reduced to $500. She would be able to receive a $321 

American opportunity credit ($200 refundable and $121 

nonrefundable), a $3,000 refundable child tax credit, and 

a $3,537 EIC. In total, she would be able to receive a tax 

refund of $6,737.

If Jane includes the entire scholarship in income, she 

will be deemed to have applied the entire scholarship to 

pay living expenses. Her qualified education expenses 

would be $6,000, and her AGI and MAGI would be 

$25,500. Her tax liability before any credits would be 

$673. She would be able to receive a $1,673 American 

opportunity credit ($1,000 refundable and $673 

nonrefundable), a $3,000 refundable child tax credit, and 

a $2,658 EIC. In total, she would be able to receive a tax 

refund of $6,658.

If Jane includes $3,500 of the scholarship in income, 

she will be deemed to have applied $3,500 of the scholarship to pay living expenses, and $2,000 to pay qualified 

education expenses. Her qualified education expenses 

would be $4,000, and her AGI and MAGI would be 

$23,500. Her tax liability before any credits would be 

$473. She would be able to receive a $1,473 American 

opportunity credit ($1,000 refundable and $473 nonrefundable), a $3,000 refundable child tax credit, and a 

$2,978 EIC. In total, she would be able to receive a tax refund of $6,978.

If Jane includes $1,500 of the scholarship in income, 

she will be deemed to have applied $1,500 of the scholarship to pay living expenses, and $4,000 to pay qualified 

education expenses. Her qualified education expenses 

would be $2,000, and her AGI and MAGI would be 

$21,500. Her tax liability before any credits would be 

$271. She would be able to receive a $1,071 American 

opportunity credit ($800 refundable and $271 nonrefundable), a $3,000 refundable child tax credit, and a $3,297 

EIC. In total, she would be able to receive a tax refund of 

$7,097. This is the highest tax refund among these scenarios.

Note. Whether you will benefit from applying a scholarship or fellowship grant to nonqualified expenses will 

depend on the amount of the student's qualified education 

expenses, the amount of the scholarship or fellowship 

grant, and whether the scholarship or fellowship grant 

may (by its terms) be used for nonqualified expenses. Any 

benefit will also depend on the student’s federal and state 

marginal tax rates as well as any federal and state tax 

credits the student claims. Before deciding, look at the total amount of your federal and state tax refunds or taxes 

owed and, if the student is your dependent, the student’s 

tax refunds or taxes owed. For example, if you are the student and you also claim the EIC, choosing to apply a 

scholarship or fellowship grant to nonqualified expenses 

by including the amount in your income may benefit you if 

the increase to your American opportunity credit is more 

than the decrease to your EIC.

Expenses That Don't Qualify

Qualified education expenses don't include amounts paid 

for:

• Insurance;

• Medical expenses (including student health fees);

• Room and board;

• Transportation; or

• Similar personal, living, or family expenses.

This is true even if the amount must be paid to the institution as a condition of enrollment or attendance.

Sports, games, hobbies, and noncredit courses.

Qualified education expenses generally don't include 

Chapter 2 American Opportunity Credit Page 17
expenses that relate to any course of instruction or other 

education that involves sports, games, or hobbies, or any 

noncredit course. However, if the course of instruction or 

other education is part of the student's degree program, 

these expenses can qualify.

Comprehensive or bundled fees. Some eligible educational institutions combine all of their fees for an academic 

period into one amount. If you don't receive or don't have 

access to an allocation showing how much you paid for 

qualified education expenses and how much you paid for 

personal expenses, such as those listed earlier, contact 

the institution. The institution is generally required to make 

this allocation and provide you with the amount you paid 

for qualified education expenses on Form 1098-T. See 

Figuring the Credit, later, for more information about Form 

1098-T. 

Who Is an Eligible Student?

To claim the American opportunity credit, the student for 

whom you pay qualified education expenses must be an 

eligible student. This is a student who meets all of the following requirements.

• The student didn't have expenses that were used to 

figure an American opportunity credit in any 4 earlier 

tax years.

• The student hadn't completed the first 4 years of postsecondary education (generally, the freshman, sophomore, junior, and senior years of college) before 2021.

• For at least one academic period beginning in 2021 

(or the first 3 months of 2022 if the qualified expenses 

were paid in 2021), the student was enrolled at least 

half-time in a program leading to a degree, certificate, 

or other recognized educational credential.

• The student hasn't been convicted of any federal or 

state felony for possessing or distributing a controlled 

substance as of the end of 2021.

These requirements are also shown in Figure 2-2.

Completion of first 4 years. A student has completed 

the first 4 years of postsecondary education if the institution at which the student is enrolled awards the student 4 

years of academic credit at that institution for coursework 

completed by the student before 2021. This student generally wouldn't be an eligible student for purposes of the 

American opportunity credit.

Exception. Any academic credit awarded solely on 

the basis of the student's performance on proficiency examinations is disregarded in determining whether the student has completed 4 years of postsecondary education.

Enrolled at least half-time. A student was enrolled at 

least half-time if the student was taking at least half the 

normal full-time workload for his or her course of study.

The standard for what is half of the normal full-time 

workload is determined by each eligible educational institution. However, the standard may not be lower than any 

of those established by the U.S. Department of Education 

under the Higher Education Act of 1965.

Example 1. Mack graduated from high school in June 

2020. In September, he enrolled in an undergraduate degree program at College U, and attended full-time for both 

the 2020 fall and 2021 spring semesters. For the 2021 fall 

semester, Mack was enrolled less than half-time. Because Mack was enrolled in an undergraduate degree 

program on at least a half-time basis for at least one academic period that began in 2020 and at least one academic period that began in 2021, he is an eligible student 

for tax years 2020 and 2021 (including the 2021 fall semester when he enrolled at College U on less than a 

half-time basis).

Example 2. After taking classes at College V on a 

part-time basis for a few years, Shelly became a full-time 

student for the 2021 spring semester. College V classified 

Shelly as a second-semester senior (fourth year) for the 

2021 spring semester and as a first-semester graduate 

student (fifth year) for the 2021 fall semester. Because 

College V didn't classify Shelly as having completed the 

first 4 years of postsecondary education as of the beginning of 2021, Shelly is an eligible student for tax year 

2021. Therefore, the qualified education expenses paid 

for the 2021 spring semester and the 2021 fall semester 

are taken into account in figuring the American opportunity credit for 2021.

Example 3. During the 2020 fall semester, Larry was a 

high school student who took classes on a half-time basis 

at College X. Larry wasn't enrolled as part of a degree program at College X because College X only admits students to a degree program if they have a high school diploma or equivalent. Because Larry wasn't enrolled in a 

degree program at College X during 2020, Larry wasn't an 

eligible student for tax year 2020.

Example 4. The facts are the same as in Example 3. 

During the 2021 spring semester, Larry again attended 

College X but not as part of a degree program. Larry graduated from high school in June 2021. For the 2021 fall semester, Larry enrolled as a full-time student in College X 

as part of a degree program, and College X awarded 

Larry credit for his prior coursework at College X. Because 

Larry was enrolled in a degree program at College X for 

the 2021 fall term on at least a half-time basis, Larry is an 

eligible student for all of tax year 2021. Therefore, the 

qualified education expenses paid for classes taken at 

College X during both the 2021 spring semester (during 

which Larry wasn't enrolled in a degree program) and the 

2021 fall semester are taken into account in figuring any 

American opportunity credit.

Example 5. Dee graduated from high school in June 

2020. In January 2021, Dee enrolled in a 1-year postsecondary certificate program on a full-time basis to obtain a 

certificate as a travel agent. Dee completed the program 

in December 2021 and was awarded a certificate. In January 2022, she enrolled in a 1-year postsecondary certificate program on a full-time basis to obtain a certificate as 

Page 18 Chapter 2 American Opportunity Credit
a computer programmer. Dee is an eligible student for 

both tax years 2021 and 2022 because she meets the degree requirement, the workload requirement, and the year 

of study requirement for those years.

Who Can Claim a

Dependent's Expenses?

If there are qualified education expenses for your dependent during a tax year, either you or your dependent, but 

not both of you, can claim an American opportunity credit 

for your dependent's expenses for that year.

For you to claim an American opportunity credit for your 

dependent's expenses, you must also claim your dependent on your tax return. You do this by listing your dependent's name and other required information on Form 1040 

or 1040-SR.

Figure 2-2. Who Is an Eligible Student for the American Opportunity Credit?

No

Yes

No

Yes

Yes

Yes

No

No

This chart is provided to help you quickly decide whether a student is eligible for the American 

opportunity credit. See the text for more details.

Was the American opportunity credit claimed in at 

least 4 prior tax years for this student?

The student is 

an eligible student.

The student isn’t 

an eligible student.

Did the student complete the rst 4 years of 

postsecondary education before the beginning of the 

tax year?

Was the student enrolled at least half-time in a 

program leading to a degree, certicate, or other 

recognized educational credential for at least one 

academic period beginning during 2021 (or the rst 

3 months of 2022 if the qualied expenses were paid 

in 2021)?

Is the student free of any federal or state felony 

conviction for possessing or distributing a controlled 

substance as of the end of the tax year?

Chapter 2 American Opportunity Credit Page 19
IF you... THEN only...

claim on 

your tax return a 

dependent who is an 

eligible student

you can claim the American 

opportunity credit based on 

that dependent's expenses. 

The dependent can't claim 

the credit.

don't claim on your tax 

return a dependent who is 

an eligible student (even if 

entitled to claim the 

dependent)

the dependent can claim the 

American opportunity credit. 

You can't claim the credit 

based on this dependent's 

expenses.

Expenses paid by dependent. If you claim on your tax 

return an eligible student who is your dependent, treat any 

expenses paid (or deemed paid) by your dependent as if 

you had paid them. Include these expenses when figuring 

the amount of your American opportunity credit.

Qualified education expenses paid directly to an 

eligible educational institution for your dependent 

under a court-approved divorce decree are treated as paid by your dependent.

Expenses paid by you. If you claim a dependent who is 

an eligible student, only you can include any expenses 

you paid when figuring the amount of the American opportunity credit. If neither you nor anyone else claims the dependent, only the dependent can include any expenses 

you paid when figuring the American opportunity credit.

Expenses paid by others. Someone other than you, 

your spouse, or your dependent (such as a relative or former spouse) may make a payment directly to an eligible 

educational institution to pay for an eligible student's qualified education expenses. In this case, the student is treated as receiving the payment from the other person and, 

in turn, paying the institution. If you claim the student as a 

dependent on your tax return, you are considered to have 

paid the expenses.

Example. In 2021, Ms. Allen makes a payment directly 

to an eligible educational institution for her grandson 

Todd's qualified education expenses. For purposes of 

claiming an American opportunity credit, Todd is treated 

as receiving the money from his grandmother and, in turn, 

paying his qualified education expenses himself.

Unless Todd is claimed as a dependent on someone 

else's 2021 tax return, only Todd can use the payment to 

claim an American opportunity credit.

If anyone, such as Todd's parents, claims Todd on his 

or her 2021 tax return, whoever claims him may be able to 

use the expenses to claim an American opportunity credit. 

If anyone else claims Todd, Todd can't claim an American 

opportunity credit.

Tuition reduction. When an eligible educational institution provides a reduction in tuition to an employee of the 

institution (or spouse or dependent child of an employee), 

the amount of the reduction may or may not be taxable. If 

it is taxable, the employee is treated as receiving a payTIP

ment of that amount and, in turn, paying it to the educational institution on behalf of the student. For more information on tuition reductions, see Qualified Tuition 

Reduction in chapter 1.

Figuring the Credit

The amount of the American opportunity credit (per eligible student) is the sum of:

1. 100% of the first $2,000 of qualified education expenses you paid for the eligible student, and

2. 25% of the next $2,000 of qualified education expenses you paid for that student.

The maximum amount of American opportunity credit 

you can claim in 2021 is $2,500 multiplied by the number 

of eligible students. You can claim the full $2,500 for each 

eligible student for whom you paid at least $4,000 of adjusted qualified education expenses. However, the credit 

may be reduced based on your MAGI. See Effect of the 

Amount of Your Income on the Amount of Your Credit, 

later.

Example. Jack and Kay Ford are married and file a 

joint tax return. For 2021, they claim their dependent 

daughter on their tax return. Their MAGI is $70,000. Their 

daughter is in her junior (third) year of studies at the local 

university. Jack and Kay paid qualified education expenses of $4,300 in 2021.

Jack and Kay, their daughter, and the local university 

meet all of the requirements for the American opportunity 

credit. Jack and Kay can claim a $2,500 American opportunity credit in 2021. This is 100% of the first $2,000 of 

qualified education expenses, plus 25% of the next 

$2,000.

Form 1098-T. To help you figure your American opportunity credit, the student may receive Form 1098-T. Generally, an eligible educational institution (such as a college 

or university) must send Form 1098-T (or acceptable substitute) to each enrolled student by January 31, 2022. An 

institution will report payments received (box 1) for qualified education expenses. However, the amount on Form 

1098-T might be different from what you paid. When figuring the credit, use only the amounts you paid or are 

deemed to have paid in 2021 for qualified education expenses.

In addition, Form 1098-T should give other information 

for that institution, such as adjustments made for prior 

years, the amount of scholarships or grants, reimbursements or refunds, and whether the student was enrolled at 

least half-time or was a graduate student.

The eligible educational institution may ask for a completed Form W-9S, Request for Student's or Borrower's 

Taxpayer Identification Number and Certification, or similar statement to obtain the student's name, address, and 

TIN.

Page 20 Chapter 2 American Opportunity Credit
To claim the American opportunity credit, you 

must provide the educational institution's EIN on 

your Form 8863. You should be able to obtain this 

information from Form 1098-T or the educational institution.

Effect of the Amount of Your Income 

on the Amount of Your Credit

The amount of your American opportunity credit is phased 

out (gradually reduced) if your MAGI is between $80,000 

and $90,000 ($160,000 and $180,000 if you file a joint return). You can't claim an American opportunity credit if 

your MAGI is $90,000 or more ($180,000 or more if you 

file a joint return).

Modified adjusted gross income (MAGI). For most 

taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return.

MAGI when using Form 1040 or 1040-SR. If you file 

Form 1040 or 1040-SR, your MAGI is the AGI on line 11 of 

that form, modified by adding back any:

1. Foreign earned income exclusion,

2. Foreign housing exclusion,

3. Foreign housing deduction,

4. Exclusion of income by bona fide residents of American Samoa, and

5. Exclusion of income by bona fide residents of Puerto 

Rico.

You can use Worksheet 2-1 to figure your MAGI.

MAGI for the American 

Opportunity Credit

Worksheet 2-1.

1. Enter your adjusted gross income 

(Form 1040 or 1040-SR, line 11) .......... 1.

2. Enter your foreign earned income 

exclusion and/or housing exclusion 

(Form 2555, line 45) ........... 2.

3. Enter your foreign housing 

deduction (Form 2555, line 50) .... 3.

4. Enter the amount of income from 

Puerto Rico you are excluding .... 4.

5. Enter the amount of income from 

American Samoa you are excluding 

(Form 4563, line 15) ........... 5.

6. Add the amounts on

lines 2, 3, 4, and 5 .................... 6.

7. Add the amounts on lines 1 and 6. 

This is your modified adjusted gross 

income. Enter here and 

on Form 8863, line 3 .................. 7.

Phaseout. If your MAGI is within the range of incomes 

where the credit must be reduced, you will figure your reCAUTION

!

duced credit using lines 2–7 of Form 8863, Part I. The 

same method is shown in the following example.

Example. You are filing a joint return and your MAGI is 

$165,000. In 2021, you paid $5,000 of qualified education 

expenses.

You figure a tentative American opportunity credit of 

$2,500 (100% of the first $2,000 of qualified education expenses, plus 25% of the next $2,000 of qualified education expenses).

Because your MAGI is within the range of incomes 

where the credit must be reduced, you must multiply your 

tentative credit ($2,500) by a fraction. The numerator (top 

part) of the fraction is $180,000 (the upper limit for those 

filing a joint return) minus your MAGI. The denominator 

(bottom part) is $20,000, the range of incomes for the 

phaseout ($160,000 to $180,000). The result is the 

amount of your phased out (reduced) American opportunity credit ($1,875).

$2,500 ×

$180,000-$165,000

= $1,875 $20,000

Refundable Part of Credit

Forty percent of the American opportunity credit is refundable for most taxpayers. However, if you were under age 

24 at the end of 2021 and the conditions listed below apply to you, you can't claim any part of the American opportunity credit as a refundable credit on your tax return. 

Instead, your allowed credit (figured on Form 8863, Part II) 

will be used to reduce your tax as a nonrefundable credit 

only.

You don't qualify for a refund if items 1 (a, b, or c), 2, 

and 3 below apply to you.

1. You were:

a. Under age 18 at the end of 2021, or

b. Age 18 at the end of 2021 and your earned income (defined below) was less than one-half of 

your support (defined below), or

c. Over age 18 and under age 24 at the end of 2021 

and a full-time student (defined below) and your 

earned income (defined below) was less than 

one-half of your support (defined below).

2. At least one of your parents was alive at the end of 

2021.

3. You are filing a return as single, head of household, 

qualifying widow(er), or married filing separately for 

2021.

Earned income. Earned income includes wages, salaries, professional fees, and other payments received for 

personal services actually performed. Earned income includes the part of any scholarship or fellowship grant that 

represents payment for teaching, research, or other services performed by the student that are required as a 

Chapter 2 American Opportunity Credit Page 21
condition for receiving the scholarship or fellowship grant. 

Earned income doesn't include that part of the compensation for personal services rendered to a corporation which 

represents a distribution of earnings or profits rather than 

a reasonable allowance as compensation for the personal 

services actually rendered.

If you are a sole proprietor or a partner in a trade or 

business in which both personal services and capital are 

material income-producing factors, earned income also 

includes a reasonable allowance for compensation for 

personal services, but not more than 30% of your share of 

the net profits from that trade or business (after subtracting the deduction for one-half of self-employment tax). 

However, if capital isn't an income-producing factor and 

your personal services produced the business income, 

the 30% limit doesn't apply.

Support. Your support includes food, shelter, clothing, 

medical and dental care, education, and the like. Generally, the amount of the item of support will be the amount 

of expenses incurred by the one furnishing such item. If 

the item of support is in the form of property or lodging, 

measure the amount of such item of support by its fair 

market value. However, a scholarship received by you 

isn't considered support if you are a full-time student. See 

Pub. 501 for details.

Full-time student. You are a full-time student for 2021 if 

during any part of any 5 calendar months during the year 

you were enrolled as a full-time student at an eligible educational institution (defined earlier), or took a full-time, 

on-farm training course given by such an institution or by a 

state, county, or local government agency.

Claiming the Credit

You claim the American opportunity credit by completing 

Form 8863 and submitting it with your Form 1040 or 

1040-SR. Enter the nonrefundable part of the credit on 

Schedule 3 (Form 1040), line 3. Enter the refundable part 

of the credit on Form 1040 or 1040-SR, line 29. A filled-in 

Form 8863 is shown at the end of this publication.

Note. In Appendix A at the end of this publication, 

there is an example illustrating the use of Form 8863 

when both the American opportunity credit and the lifetime 

learning credit are claimed on the same tax return.

3.

Lifetime Learning Credit

What’s New

Modified adjusted gross income (MAGI) limits. For 

2021, the amount of your lifetime learning credit is gradually reduced (phased out) if your MAGI is between 

$80,000 and $90,000 ($160,000 and $180,000 if you file a 

joint return). You can't claim the credit if your MAGI is 

$90,000 or more ($180,000 or more if you file a joint return). For more information, see Figuring the Credit.

Reminder

Form 1098-T requirement. To be eligible to claim the 

lifetime learning credit, the law requires a taxpayer (or a 

dependent) to have received Form 1098-T, Tuition Statement, from an eligible educational institution, whether domestic or foreign.

However, you may claim the credit if the student 

doesn't receive a Form 1098-T because the student's educational institution isn't required to furnish a Form 1098-T 

to the student under existing rules (for example, if the student is a qualified nonresident alien, has qualified education expenses paid entirely with scholarships, has qualified education expenses paid under a formal billing 

arrangement, or is enrolled in courses for which no academic credit is awarded). If a student's educational institution isn't required to provide a Form 1098-T to the student, 

you may claim the credit without a Form 1098-T if you otherwise qualify, can demonstrate that you (or a dependent) 

were enrolled at an eligible educational institution, and 

can substantiate the payment of qualified tuition and related expenses.

You may also claim the credit if the student attended an 

eligible educational institution required to furnish Form 

1098-T but the student doesn't receive Form 1098-T before you file your tax return (for example, if the institution is 

otherwise required to furnish the Form 1098-T and doesn't 

furnish it or refuses to do so) and you take the following 

required steps: After January 31, 2022, but before you file 

your 2021 tax return, you or the student must request that 

the educational institution furnish a Form 1098-T. You 

must fully cooperate with the educational institution's efforts to gather the information needed to furnish the Form 

1098-T. You must also otherwise qualify for the benefit, be 

Page 22 Chapter 3 Lifetime Learning Credit
able to demonstrate that you (or a dependent) were enrolled at an eligible educational institution, and substantiate 

the payment of qualified tuition and related expenses.

Introduction

For 2021, there are two tax credits available to help you 

offset the costs of higher education by reducing the 

amount of your income tax. They are the American opportunity credit and the lifetime learning credit. This chapter 

discusses the lifetime learning credit. The American opportunity credit is discussed in chapter 2.

This chapter explains:

• Who can claim the lifetime learning credit,

• What expenses qualify for the credit,

• Who is an eligible student,

• Who can claim a dependent's expenses,

• How to figure the credit,

• How to claim the credit, and

• When the credit must be repaid.

What is the tax benefit of the lifetime learning credit?

For the tax year, you may be able to claim a lifetime learning credit of up to $2,000 for qualified education expenses 

paid for all eligible students. There is no limit on the number of years the lifetime learning credit can be claimed for 

each student.

A tax credit reduces the amount of income tax you may 

have to pay. Unlike a deduction, which reduces the 

amount of income subject to tax, a credit directly reduces 

the tax itself. The lifetime learning credit is a nonrefundable credit. This means that it can reduce your tax to zero, 

but if the credit is more than your tax, the excess won't be 

refunded to you.

Your allowable lifetime learning credit may be limited by 

the amount of your income and the amount of your tax.

Can you claim more than one education credit this 

year? For each student, you can elect for any year only 

one of the credits. For example, if you elect to claim the 

lifetime learning credit for a child on your 2021 tax return, 

you can't, for that same child, also claim the American opportunity credit for 2021.

If you are eligible to claim the lifetime learning credit 

and you are also eligible to claim the American opportunity credit for the same student in the same year, you can 

choose to claim either credit, but not both.

If you claim the American opportunity credit for 

any student, you can choose between using that 

student's adjusted qualified education expenses 

for the American opportunity credit or the lifetime learning 

credit. If you have the choice, the American opportunity 

credit will always be greater than the lifetime learning 

credit.

If you pay qualified education expenses for more than 

one student in the same year, you can choose to claim 

certain credits on a per-student, per-year basis. This 

TIP

means that, for example, you can claim the American opportunity credit for one student and the lifetime learning 

credit for another student in the same year.

Differences between the American opportunity and 

lifetime learning credits. There are several differences 

between these two credits. For example, you can claim 

the American opportunity credit for the same student for 

no more than 4 tax years. However, there is no limit on the 

number of years for which you can claim a lifetime learning credit based on the same student's expenses. The differences between these credits are shown in Appendix B 

near the end of this publication.

Overview of the lifetime learning credit for 2021. See 

Table 3-1 for the basics of the credit. The details are discussed in this chapter.

Can You Claim the Credit?

The following rules will help you determine if you are eligible to claim the lifetime learning credit on your tax return.

Who Can Claim the Credit?

Generally, you can claim the lifetime learning credit if all 

three of the following requirements are met.

• You pay qualified education expenses of higher education.

• You pay the education expenses for an eligible student.

• The eligible student is either yourself, your spouse, or 

a dependent you claim on your tax return.

Chapter 3 Lifetime Learning Credit Page 23
Overview of the Lifetime 

Learning Credit for 2021

Maximum credit Up to $2,000 credit per return

Limit on modified adjusted 

gross income (MAGI)

$180,000 if married filling jointly; 

$90,000 if single, head of household, 

or qualifying widow(er)

Refundable or 

nonrefundable

Nonrefundable—credit limited to the 

amount of tax you must pay on your 

taxable income

Number of years of 

postsecondary education

Available for all years of 

postsecondary education and for 

courses to acquire or improve job 

skills

Number of tax years credit 

available

Available for an unlimited number of 

tax years

Type of program required Student doesn't need to be pursuing a 

program leading to a degree or other 

recognized education credential

Number of courses Available for one or more courses

Felony drug conviction Felony drug convictions don't make 

the student ineligible

Qualified expenses Tuition and fees required for 

enrollment or attendance (including 

amounts required to be paid to the 

institution for course-related books, 

supplies, and equipment)

Payments for academic 

periods

Payments made in 2021 for academic 

periods beginning in 2021 or 

beginning in the first 3 months of 2022

Note. Qualified education expenses paid by a dependent you claim on your tax return, or by a third party for that 

dependent, are considered paid by you.

“Qualified education expenses” are defined later under 

Qualified Education Expenses. “Eligible students” are defined later under Who Is an Eligible Student. A dependent 

you claim on your tax return is defined later under Who 

Can Claim a Dependent's Expenses.

You may find Figure 3-1 helpful in determining if you 

can claim a lifetime learning credit on your tax return.

Who Can't Claim the Credit?

You can't claim the lifetime learning credit for 2021 if any 

of the following apply.

• Your filing status is married filing separately.

• You are listed as a dependent on another person's tax 

return (such as your parents'). See Who Can Claim a 

Dependent's Expenses, later.

• Your modified adjusted gross income (MAGI) is 

$90,000 or more ($180,000 or more if filing married filing jointly). MAGI is explained later under Effect of the 

Amount of Your Income on the Amount of Your Credit.

• You (or your spouse) were a nonresident alien for any 

part of 2021 and the nonresident alien didn't elect to 

be treated as a resident alien for tax purposes. More 

Table 3-1. information on nonresident aliens can be found in 

Pub. 519.

• You claim the American opportunity credit (see chapter 2) for the same student in 2021. 

What Expenses Qualify?

The lifetime learning credit is based on qualified education 

expenses you pay for yourself, your spouse, or a dependent you claim on your tax return. Generally, the credit is allowed for qualified education expenses paid in 2021 for an 

academic period beginning in 2021 or in the first 3 months 

of 2022.

For example, if you paid $1,500 in December 2021 for 

qualified tuition for the spring 2022 semester beginning in 

January 2022, you may be able to use that $1,500 in figuring your 2021 credit.

Academic period. An academic period includes a semester, trimester, quarter, or other period of study (such 

as a summer school session) as reasonably determined 

by an educational institution. If an educational institution 

uses credit hours or clock hours and doesn't have academic terms, each payment period can be treated as an 

academic period.

Paid with borrowed funds. You can claim a lifetime 

learning credit for qualified education expenses paid with 

the proceeds of a loan. You use the expenses to figure the 

lifetime learning credit for the year in which the expenses 

are paid, not the year in which the loan is repaid. Treat 

loan disbursements sent directly to the educational institution as paid on the date the institution credits the student's 

account.

Student withdraws from class(es). You can claim a 

lifetime learning credit for qualified education expenses 

not refunded when a student withdraws.

Qualified Education Expenses

For purposes of the lifetime learning credit, qualified education expenses are tuition and certain related expenses 

required for enrollment in a course at an eligible educational institution. The course must be either part of a postsecondary degree program or taken by the student to acquire or improve job skills.

Eligible educational institution. An eligible educational 

institution is any college, university, vocational school, or 

other postsecondary educational institution eligible to participate in a student aid program administered by the U.S. 

Department of Education. It includes virtually all accredited public, nonprofit, and proprietary (privately owned 

profit-making) postsecondary institutions.

The educational institution should be able to tell 

TIP

you if it is an eligible educational institution.

Page 24 Chapter 3 Lifetime Learning Credit
Certain educational institutions located outside the United States also participate in the U.S. Department of Education's Federal Student Aid (FSA) programs.

Related expenses. Student activity fees and expenses 

for course-related books, supplies, and equipment are included in qualified education expenses only if the fees 

and expenses must be paid to the institution for enrollment or attendance.

Prepaid expenses. Qualified education expenses paid 

in 2021 for an academic period that begins in the first 3 

months of 2022 can be used in figuring an education 

credit for 2021 only. See Academic period, earlier. For example, if you pay $2,000 in December 2021 for qualified 

tuition for the 2022 winter quarter that begins in January 

2022, you can use that $2,000 in figuring an education 

credit for 2021 only (if you meet all the other requirements).

You can't use any amount you paid in 2020 or 

2022 to figure the qualified education expenses 

you use to figure your 2021 education credit(s).

In the following examples, assume that each student is 

an eligible student at an eligible educational institution.

Example 1. Jackson is a sophomore in University V's 

degree program in dentistry. This year, in addition to tuition, he is required to pay a fee to the university for the 

rental of the dental equipment he will use in this program. 

Because the equipment rental fee must be paid to University V for enrollment and attendance, Jackson's equipment rental fee is a qualified expense.

Example 2. Donna and Charles, both first-year students at College W, are required to have certain books 

and other reading materials to use in their mandatory 

first-year classes. The college has no policy about how 

students should obtain these materials, but any student 

who purchases them from College W's bookstore will receive a bill directly from the college. Charles bought his 

books from a friend, so what he paid for them isn't a qualified education expense. Donna bought hers at College 

W's bookstore. Although Donna paid College W directly 

for her first-year books and materials, her payment isn't a 

qualified expense because the books and materials aren't 

required to be purchased from College W for enrollment 

or attendance at the institution.

Example 3. When Marci enrolled at College X for her 

freshman year, she had to pay a separate student activity 

fee in addition to her tuition. This activity fee is required of 

all students, and is used solely to fund on-campus organizations and activities run by students, such as the student 

newspaper and student government. No portion of the fee 

covers personal expenses. Although labeled as a student 

activity fee, the fee is required for Marci's enrollment and 

attendance at College X. Therefore, it is a qualified expense.

CAUTION

!

No Double Benefit Allowed

You can't do any of the following.

• Deduct higher education expenses on your income 

tax return (as, for example, a business expense) and 

also claim a lifetime learning credit based on those 

same expenses.

• Claim a lifetime learning credit for any student and use 

any of that student's expenses in figuring your American opportunity credit.

• Claim a lifetime learning credit based on the same expenses used to figure the tax-free portion of a distribution from a Coverdell education savings account 

(ESA) or qualified tuition program (QTP). See Coordination With American Opportunity and Lifetime Learning Credits in chapter 6 and Coordination With American Opportunity and Lifetime Learning Credits in 

chapter 7.

• Claim a credit based on qualified education expenses 

paid with tax-free educational assistance, such as a 

scholarship, grant, or assistance provided by an employer. See Adjustments to Qualified Education Expenses next.

Adjustments to Qualified Education 

Expenses

For each student, reduce the qualified education expenses paid by or on behalf of that student under the following rules. The result is the amount of adjusted qualified 

education expenses for each student.

Tax-free educational assistance. For tax-free educational assistance received in 2021, reduce the qualified 

educational expenses for each academic period by the 

amount of tax-free educational assistance allocable to that 

academic period. See Academic period, earlier.

Some tax-free educational assistance received after 

2021 may be treated as a refund of qualified education expenses paid in 2021. This tax-free educational assistance 

is any tax-free educational assistance received by you or 

anyone else after 2021 for qualified education expenses 

paid on behalf of a student in 2021 (or attributable to enrollment at an eligible educational institution during 2021).

If this tax-free educational assistance is received after 

2021 but before you file your 2021 income tax return, see 

Refunds received after 2021 but before your income tax 

return is filed, later. If this tax-free educational assistance 

is received after 2021 and after you file your 2021 income 

tax return, see Refunds received after 2021 and after your 

income tax return is filed, later.

Tax-free educational assistance includes:

• The tax-free part of scholarships and fellowship grants 

(see Tax-Free Scholarships and Fellowship Grants in 

chapter 1);

• The tax-free part of Pell grants (see Pell Grants and 

Other Title IV Need-Based Education Grants in chapter 1);

Chapter 3 Lifetime Learning Credit Page 25
Figure 3-1. Can You Claim the Lifetime Learning Credit for 2021?

Did you pay qualied education expenses in 2021 for an eligible student?*

Did the academic period for which you paid qualied education 

expenses begin in 2021 or the rst 3 months of 2022?

Is the eligible student you, your spouse (if married ling jointly), or your 

dependent you claim on your tax return?

Are you listed as a dependent on another person’s tax return?

Is your ling status married ling separately?

For any part of 2021, were you (or your spouse) a nonresident alien who 

didn’t elect to be treated as a resident alien for tax purposes?

Is your modied adjusted gross income (MAGI) less than $90,000 

($180,000 if married ling jointly)?

Are you claiming an American opportunity credit for the same student?

Did you use the same expenses to claim a deduction or credit?

Were the same expenses paid with a tax-free scholarship, grant, or 

employer-provided educational assistance? 

Did you, or someone else, receive a refund of all the expenses?

Do you have a tax liability (Form 1040 or 1040-SR, line 18, minus 

Schedule 3 (Form 1040), lines 1, 2, 6d, and 6l)?

No

No

No

Yes

Yes

Yes

No

No

Yes

Yes

Yes

Yes

Yes

No

Yes

Yes

No

No

Yes

Yes

No

No

No

No

**Your education credits may be limited to your tax liability minus certain credits. See Form 8863 for more details.

You can claim

the lifetime

learning credit

for 2021.**

You can’t 

claim the lifetime 

learning credit for 

2021.

*Qualified education expenses paid by a dependent you claim on your tax return, or by a third party for that dependent, are considered paid by 

you.

Page 26 Chapter 3 Lifetime Learning Credit
• Employer-provided educational assistance (see chapter 10);

• Veterans' educational assistance (see Veterans' Benefits in chapter 1); and

• Any other nontaxable (tax-free) payments (other than 

gifts or inheritances) received as educational assistance.

Generally, any scholarship or fellowship grant is treated 

as tax free. However, a scholarship or fellowship grant 

isn't treated as tax free to the extent the student includes it 

in gross income (the student may or may not be required 

to file a tax return for the year the scholarship or fellowship 

grant is received) and either of the following is true.

• The scholarship or fellowship grant (or any part of it) 

must be applied (by its terms) to expenses (such as 

room and board) other than qualified education expenses as defined in Qualified education expenses in 

chapter 1.

• The scholarship or fellowship grant (or any part of it) 

may be applied (by its terms) to expenses (such as 

room and board) other than qualified education expenses as defined in Qualified education expenses in 

chapter 1.

A student can't choose to include in income a 

scholarship or fellowship grant provided by an Indian tribal government that is excluded from income under the Tribal General Welfare Exclusion Act of 

2014 or benefits provided by an educational program described in Revenue Procedure 2014-35, section 5.02(2)

(b)(ii), available at IRS.gov/irb/2014-26_IRB#RP-2014-35.

You may be able to increase the combined value 

of an education credit if the student includes 

some or all of a scholarship or fellowship grant in 

income in the year it is received. For examples, see Coordination with Pell grants and other scholarships, later.

Refunds. A refund of qualified education expenses may 

reduce adjusted qualified education expenses for the tax 

year or require repayment (recapture) of a credit claimed 

in an earlier year. Some tax-free educational assistance 

received after 2021 may be treated as a refund. See 

Tax-free educational assistance, earlier.

Refunds received in 2021. For each student, figure 

the adjusted qualified education expenses for 2021 by 

adding all the qualified education expenses for 2021 and 

subtracting any refunds of those expenses received from 

the eligible educational institution during 2021.

Refunds received after 2021 but before your income tax return is filed. If anyone receives a refund after 2021 of qualified education expenses paid on behalf of 

a student in 2021 and the refund is paid before you file an 

income tax return for 2021, the amount of qualified education expenses for 2021 is reduced by the amount of the 

refund.

Refunds received after 2021 and after your income 

tax return is filed. If anyone receives a refund after 2021 

CAUTION

!

TIP

of qualified education expenses paid on behalf of a student in 2021 and the refund is paid after you file an income tax return for 2021, you may need to repay some or 

all of the credit. See Credit recapture next.

Credit recapture. If any tax-free educational assistance 

for the qualified education expenses paid in 2021 or any 

refund of your qualified education expenses paid in 2021 

is received after you file your 2021 income tax return, you 

must recapture (repay) any excess credit. You do this by 

refiguring the amount of your adjusted qualified education 

expenses for 2021 by reducing the expenses by the 

amount of the refund or tax-free educational assistance. 

You then refigure your education credit(s) for 2021 and 

figure the amount by which your 2021 tax liability would 

have increased if you had claimed the refigured credit(s). 

Include that amount as an additional tax for the year the 

refund or tax-free assistance was received.

Example. You pay $9,300 in tuition and fees in December 2021, and your child began college in January 

2022. You filed your 2021 tax return on February 14, 

2022, and claimed a lifetime learning credit of $1,860. You 

claimed no other tax credits. After you filed your return, 

your child withdrew from two courses and you received a 

refund of $2,900. You must refigure your 2021 lifetime 

learning credit using $6,400 of qualified education expenses instead of $9,300. The refigured credit is $1,280 and 

your tax liability increased by $580. See the instructions 

for your 2022 income tax return to determine where to include this tax.

If you pay qualified education expenses in both 

2021 and 2022 for an academic period that begins in the first 3 months of 2022 and you receive 

tax-free educational assistance, or a refund, as described 

above, you may choose to reduce your qualified education expenses for 2022 instead of reducing your expenses 

for 2021.

Amounts that don't reduce qualified education expenses. Don't reduce qualified education expenses by 

amounts paid with funds the student receives as:

• Payment for services, such as wages;

• A loan;

• A gift;

• An inheritance; or

• A withdrawal from the student's personal savings.

Don't reduce the qualified education expenses by any 

scholarship or fellowship grant reported as income on the 

student's tax return in the following situations.

• The use of the money is restricted, by the terms of the 

scholarship or fellowship grant, to costs of attendance 

(such as room and board) other than qualified education expenses, as defined in Qualified education expenses in chapter 1.

• The use of the money isn't restricted.

For examples, see Adjustments to Qualified Education 

Expenses in chapter 2. 

TIP

Chapter 3 Lifetime Learning Credit Page 27
Coordination with Pell grants and other scholarships. You may be able to increase your lifetime learning 

credit when the student (you, your spouse, or your dependent) includes certain scholarships or fellowship 

grants in the student’s gross income. Your credit may increase only if the amount of the student's qualified education expenses minus the total amount of scholarships and 

fellowship grants is less than $10,000. If this situation applies, consider including some or all of the scholarship or 

fellowship grant in the student's income in order to treat 

the included amount as paying nonqualified expenses instead of qualified education expenses. Nonqualified expenses are expenses such as room and board that aren't 

qualified education expenses such as tuition and related 

fees.

Scholarships and fellowship grants that the student includes in income don't reduce the student's qualified education expenses available to figure your lifetime learning 

credit. Thus, including enough of the scholarship or fellowship grant in the student's income to report up to $10,000 

in qualified education expenses for your lifetime learning 

credit may increase the credit by enough to increase your 

tax refund or reduce the amount of tax you owe even considering any increased tax liability from the additional income. However, the increase in tax liability as well as the 

loss of other tax credits may be greater than the additional 

lifetime learning credit and may cause your tax refund to 

decrease or the amount of tax you owe to increase. Your 

specific circumstances will determine what amount, if any, 

of the scholarship or fellowship grant to include in income 

to maximize your tax refund or minimize the amount of tax 

you owe.

The scholarship or fellowship grant must be one that 

may qualify as a tax-free scholarship under the rules discussed in chapter 1. Also, the scholarship or fellowship 

grant must be one that may (by its terms) be used for nonqualified expenses. Finally, the amount of the scholarship 

or fellowship grant that is applied to nonqualified expenses can't exceed the amount of the student's actual nonqualified expenses that are paid in the tax year. This 

amount may differ from the student's living expenses estimated by the student's school in figuring the official cost of 

attendance under student aid rules.

The fact that the educational institution applies the 

scholarship or fellowship grant to qualified education expenses, such as tuition and related fees, doesn't prevent 

the student from choosing to apply certain scholarships or 

fellowship grants to the student's actual nonqualified expenses. By making this choice (that is, by including the 

part of the scholarship or fellowship grant applied to the 

student's nonqualified expenses in income), the student 

may increase taxable income and may be required to file 

a tax return. But this allows payments made in cash, by 

check, by credit or debit card, or with borrowed funds 

such as a student loan to be applied to qualified education 

expenses.

Example 1—No scholarship. Judy Green, who is unmarried, is taking courses at a public community college 

to be recertified to teach in public schools. Her adjusted 

gross income (AGI) and her MAGI, for purposes of the 

credit, are $27,400. Judy claims the standard deduction of 

$12,550, resulting in taxable income of $14,850 and a tax 

liability before credits of $1,586. Judy claims no credits 

other than the lifetime learning credit. In July 2021, she 

paid $700 for the summer 2021 semester; in August 2021, 

she paid $1,900 for the fall 2021 semester; and in December 2021, she paid another $1,900 for the spring semester 

beginning in January 2022. Judy and the college meet all 

requirements for the lifetime learning credit. She can use 

all of the $4,500 tuition she paid in 2021 when figuring her 

2021 lifetime learning credit. She claims a $900 lifetime 

learning credit and her tax liability after credits is $686.

Example 2—Scholarship excluded from income. 

The facts are the same as in Example 1—No scholarship, 

except that Judy was awarded a $1,500 scholarship. Under the terms of her scholarship, it may be used to pay 

any educational expenses, including room and board. If 

Judy excludes the scholarship from income, she will be 

deemed (for purposes of figuring her education credit) to 

have applied the scholarship to pay for tuition, required 

fees, and course materials. Only $3,000 of the $4,500 tuition she paid in 2021 could be used when figuring her 

2021 lifetime learning credit. Her lifetime learning credit 

would be reduced to $600 and her tax liability after credits 

would be $986.

Example 3—Scholarship included in income. The 

facts are the same as in Example 2—Scholarship excluded from income. If, unlike Example 2, Judy includes the 

$1,500 scholarship in income, she will be deemed to have 

applied the entire scholarship to pay for room and board. 

Judy's AGI and MAGI would increase to $28,900, her taxable income would be $16,350, and her tax liability before 

credits would be $1,766. She would be able to use the 

$4,500 of adjusted qualified education expenses to figure 

her credit. Judy could claim a $900 lifetime learning credit 

and her tax liability after credits would be $866.

Example 4—Scholarship applied by the postsecondary school to tuition. The facts are the same as in 

Example 3—Scholarship included in income, except the 

$1,500 scholarship is paid directly to the public community college. The fact that the public community college applies the scholarship to Judy's tuition and related fees 

doesn't prevent Judy from including the $1,500 scholarship in income. As in Example 3, by doing so, she will be 

deemed to have applied the entire scholarship to pay for 

room and board. Judy could claim the $900 lifetime learning credit and her tax liability after credits would be $866.

Note. Whether you will benefit from applying a scholarship or fellowship grant to nonqualified expenses will 

depend on the amount of the student's qualified education 

expenses, the amount of the scholarship or fellowship 

grant, and whether the scholarship or fellowship grant 

may (by its terms) be used for nonqualified expenses. Any 

benefit will also depend on the student's federal and state 

marginal tax rates as well as any federal and state tax 

credits the student claims. Before deciding, look at the total amount of your federal and state tax refunds or taxes 

owed and, if the student is your dependent, the student's 

Page 28 Chapter 3 Lifetime Learning Credit
tax refunds or taxes owed. For example, if you are the student and you also claim the earned income credit, choosing to apply a scholarship or fellowship grant to nonqualified expenses by including the amount in your income 

may not benefit you if the decrease to your earned income 

credit as a result of including the scholarship or fellowship 

grant in income is more than the increase to your lifetime 

learning credit as a result of including this amount in income.

Expenses That Don't Qualify

Qualified education expenses don't include amounts paid 

for:

• Insurance;

• Medical expenses (including student health fees);

• Room and board;

• Transportation; or

• Similar personal, living, or family expenses.

This is true even if the amount must be paid to the institution as a condition of enrollment or attendance.

Sports, games, hobbies, and noncredit courses.

Qualified education expenses generally don't include expenses that relate to any course of instruction or other education that involves sports, games, or hobbies, or any 

noncredit course. However, if the course of instruction or 

other education is part of the student's degree program or 

is taken by the student to acquire or improve job skills, 

these expenses can qualify.

Comprehensive or bundled fees. Some eligible educational institutions combine all of their fees for an academic 

period into one amount. If you don't receive or don't have 

access to an allocation showing how much you paid for 

qualified education expenses and how much you paid for 

personal expenses, such as those listed above, contact 

the institution. The institution is generally required to make 

this allocation and provide you with the amount you paid 

for qualified education expenses on Form 1098-T. See 

Figuring the Credit, later, for more information about Form 

1098-T.

Who Is an Eligible Student?

For purposes of the lifetime learning credit, an eligible student is a student who is enrolled in one or more courses at 

an eligible educational institution (as defined under Qualified Education Expenses, earlier).

Who Can Claim a

Dependent's Expenses?

If there are qualified education expenses for your dependent during a tax year, either you or your dependent, but 

not both of you, can claim a lifetime learning credit for your 

dependent's expenses for that year.

For you to claim a lifetime learning credit for your dependent's expenses, you must also claim your dependent 

on your tax return. You do this by listing your dependent's 

name and other required information on Form 1040 or 

1040-SR.

IF you... THEN only...

claim on your tax return a 

dependent who is an 

eligible student

you can claim the lifetime 

learning credit based on 

that dependent's expenses. 

The dependent can't claim 

the credit.

don't claim on your tax 

return a dependent who is 

an eligible student (even if 

entitled to claim the 

dependent)

the dependent can claim the 

lifetime learning credit. You 

can't claim the credit based 

on this dependent's 

expenses.

Expenses paid by dependent. If you claim on your tax 

return an eligible student who is your dependent, treat any 

expenses paid (or deemed paid) by your dependent as if 

you had paid them. Include these expenses when figuring 

the amount of your lifetime learning credit.

Qualified education expenses paid directly to an 

eligible educational institution for your dependent 

under a court-approved divorce decree are treated as paid by your dependent.

Expenses paid by you. If you claim a dependent who is 

an eligible student, only you can include any expenses 

you paid when figuring the amount of the lifetime learning 

credit. If neither you nor anyone else claims the dependent, only the dependent can include any expenses you 

paid when figuring the lifetime learning credit.

Expenses paid by others. Someone other than you, 

your spouse, or your dependent (such as a relative or former spouse) may make a payment directly to an eligible 

educational institution to pay for an eligible student's qualified education expenses. In this case, the student is treated as receiving the payment from the other person and, 

in turn, paying the institution. If you claim the student as a 

dependent on your tax return, you are considered to have 

paid the expenses.

Example. In 2021, Ms. Allen makes a payment directly 

to an eligible educational institution for her grandson 

Todd's qualified education expenses. For purposes of 

claiming a lifetime learning credit, Todd is treated as receiving the money from his grandmother and, in turn, paying his qualified education expenses himself.

Unless Todd is claimed as a dependent on someone 

else's 2021 tax return, only Todd can use the payment to 

claim a lifetime learning credit.

If anyone, such as Todd's parents, claims Todd on his 

or her 2021 tax return, whoever claims him may be able to 

TIP

Chapter 3 Lifetime Learning Credit Page 29
use the expenses to claim a lifetime learning credit. If anyone else claims Todd, Todd can't claim a lifetime learning 

credit.

Tuition reduction. When an eligible educational institution provides a reduction in tuition to an employee of the 

institution (or spouse or dependent child of an employee), 

the amount of the reduction may or may not be taxable. If 

it is taxable, the employee is treated as receiving a payment of that amount and, in turn, paying it to the educational institution on behalf of the student. For more information on tuition reductions, see Qualified Tuition 

Reduction in chapter 1.

Figuring the Credit

The amount of the lifetime learning credit is 20% of the 

first $10,000 of qualified education expenses you paid for 

all eligible students. The maximum amount of lifetime 

learning credit you can claim for 2021 is $2,000 (20% × 

$10,000). However, that amount may be reduced based 

on your MAGI. See Effect of the Amount of Your Income 

on the Amount of Your Credit, later.

Example. Bruce and Toni Harper are married and file 

a joint tax return. For 2021, their MAGI is $75,000. Toni is 

attending a local college (an eligible educational institution) to earn credits toward a degree in nursing. She already has a bachelor's degree in history and wants to become a nurse. In August 2021, Toni paid $5,000 of 

qualified education expenses for her fall 2021 semester. 

Bruce and Toni can claim a $1,000 (20% × $5,000) lifetime learning credit on their 2021 joint tax return.

Form 1098-T. To help you figure your lifetime learning 

credit, the student may receive Form 1098-T. Generally, 

an eligible educational institution (such as a college or university) must send Form 1098-T (or acceptable substitute) 

to each enrolled student by January 31, 2022. An institution will report payments received (box 1) for qualified education expenses. However, the amount on Form 1098-T 

might be different from what you paid. When figuring the 

credit, use only the amounts you paid or are deemed to 

have paid in 2021 for qualified education expenses.

In addition, Form 1098-T should give other information 

for that institution, such as adjustments made for prior 

years, the amount of scholarships or grants, reimbursements or refunds, and whether the student was enrolled at 

least half-time or was a graduate student.

The eligible educational institution may ask for a completed Form W-9S or similar statement to obtain the student's name, address, and taxpayer identification number.

Effect of the Amount of Your Income 

on the Amount of Your Credit

The amount of your lifetime learning credit is phased out 

(gradually reduced) if your MAGI is between $80,000 and 

$90,000 ($160,000 and $180,000 if you file a joint return). 

You can't claim a lifetime learning credit if your MAGI is 

$90,000 or more ($180,000 or more if you file a joint return).

Modified adjusted gross income (MAGI). For most 

taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return.

MAGI when using Form 1040 or 1040-SR. If you file 

Form 1040 or 1040-SR, your MAGI is the AGI on line 11 of 

that form, modified by adding back any:

1. Foreign earned income exclusion,

2. Foreign housing exclusion,

3. Foreign housing deduction,

4. Exclusion of income by bona fide residents of American Samoa, and

5. Exclusion of income by bona fide residents of Puerto 

Rico.

You can use Worksheet 3-1 to figure your MAGI.

MAGI for the Lifetime

Learning Credit

1. Enter your adjusted gross income 

(Form 1040 or 1040-SR, line 11) ...... 1.

2. Enter your foreign earned 

income exclusion and/or 

housing exclusion (Form 

2555, line 45) .......... 2.

3. Enter your foreign housing 

deduction (Form 2555, 

line 50) ............... 3.

4. Enter the amount of 

income from Puerto Rico 

you’re excluding ........ 4.

5. Enter the amount of 

income from American 

Samoa you’re excluding 

(Form 4563, 

line 15) ............... 5.

6. Add the amounts on

lines 2, 3, 4, and 5 .................. 6.

7. Add the amounts on lines 1 and 6. 

This is your modified adjusted gross 

income. Enter this amount 

on Form 8863, line 14 ............... 7.

Phaseout. If your MAGI is within the range of incomes 

where the credit must be reduced, you will figure your reduced credit using lines 10–18 of Form 8863. The same 

method is shown in the following example.

Example. You are filing a joint return with a MAGI of 

$161,000. In 2021, you paid $6,600 of qualified education 

expenses.

You figure the tentative lifetime learning credit (20% of 

the first $10,000 of qualified education expenses you paid 

Worksheet 3-1.

Page 30 Chapter 3 Lifetime Learning Credit
for all eligible students). The result is a $1,320 (20% x 

$6,600) tentative credit.

Because your MAGI is within the range of incomes 

where the credit must be reduced, you must multiply your 

tentative credit ($1,320) by a fraction. The numerator (top 

part) of the fraction is $180,000 (the upper limit for those 

filing a joint return) minus your MAGI. The denominator 

(bottom part) is $20,000, the range of incomes for the 

phaseout ($160,000 to $180,000). The result is the 

amount of your phased out (reduced) lifetime learning 

credit ($1,254).

$1,320 ×

$180,000 - $161,000

= $1,254 $20,000

Claiming the Credit

You claim the lifetime learning credit by completing Form 

8863 and submitting it with your Form 1040 or 1040-SR. 

Enter the credit on Schedule 3 (Form 1040), line 3.

Note. In Appendix A at the end of this publication, 

there is an example illustrating the use of Form 8863 

when both the American opportunity credit and the lifetime 

learning credit are claimed on the same tax return.

4.

Student Loan Interest 

Deduction

What’s New

Modified adjusted gross income (MAGI) limits. For 

2021, the amount of your student loan interest deduction 

is gradually reduced (phased out) if your MAGI is between 

$70,000 and $85,000 ($140,000 and $170,000 if you file a 

joint return). You can’t claim the deduction if your MAGI is 

$85,000 or more ($170,000 or more if you file a joint return). For more information, see Figuring the Deduction.

Reminder

No double benefit allowed You can’t deduct as interest 

on a student loan any interest paid by your employer after 

March 27, 2020, and before January 1, 2026, under an 

educational assistance program. See No Double Benefit 

Allowed.

Introduction

Generally, personal interest you pay, other than certain 

mortgage interest, isn't deductible on your tax return. 

However, if your modified adjusted gross income (MAGI) 

is less than $85,000 ($170,000 if filing a joint return), you 

may be allowed a special deduction for paying interest on 

a student loan (also known as an education loan) used for 

higher education. For most taxpayers, MAGI is the adjusted gross income as figured on their federal income tax return before subtracting any deduction for student loan interest. This deduction can reduce the amount of your 

income subject to tax by up to $2,500.

The student loan interest deduction is claimed as an 

adjustment to income. This means you can claim this deduction even if you don't itemize deductions on Schedule A (Form 1040).

This chapter explains:

• What type of loan interest you can deduct,

• Whether you can claim the deduction,

• What expenses you must have paid with the student 

loan,

• Who is an eligible student,

• How to figure the deduction, and

• How to claim the deduction.

Student Loan Interest Deduction 

at a Glance

This table summarizes the features of the 

student loan interest deduction.

Don't rely on this table alone. Refer to the 

text for more details.

Feature Description

Maximum benefit You can reduce your income subject to tax by 

up to $2,500. 

Loan qualifications Your student loan:

• Must have been taken out solely to pay 

qualified education expenses, and

• Can't be from a related person or made 

under a qualified employer plan.

Student qualifications The student must be:

• You, your spouse, or your dependent (as 

defined later for this purpose); and 

• Enrolled at least half-time in a program 

leading to a degree, certificate, or other 

recognized educational credential at an eligible 

educational institution.

Limit on modified 

adjusted gross income 

(MAGI)

$170,000 if married filing a joint return;

$85,000 if single, head of household, or 

qualifying widow(er).

Table 4-1.

Chapter 4 Student Loan Interest Deduction Page 31
Student Loan Interest Defined

Student loan interest is interest you paid during the year 

on a qualified student loan. It includes both required and 

voluntary interest payments.

Qualified Student Loan

This is a loan you took out solely to pay qualified education expenses (defined later) that were:

• For you, your spouse, or a person who was your dependent (as defined later for this purpose) when you 

took out the loan;

• Paid or incurred within a reasonable period of time before or after you took out the loan; and

• For education provided during an academic period for 

an eligible student.

Loans from the following sources aren't qualified student loans.

• A related person.

• A qualified employer plan.

Your dependent. Generally, your dependent is someone 

who is either a:

• Qualifying child, or

• Qualifying relative.

You can find more information about dependents in Pub. 

501.

For this purpose, the term “dependent” also includes 

any person you could have claimed as a dependent on 

your return except that:

• You, or your spouse if filing jointly, could be claimed 

as a dependent of another taxpayer (like on your parent’s tax return);

• The person filed a joint return; or

• The person had gross income for the year that was 

equal to or more than $4,300 (for 2021).

Reasonable period of time. Qualified education expenses are treated as paid or incurred within a reasonable period of time before or after you take out the loan if they are 

paid with the proceeds of student loans that are part of a 

federal postsecondary education loan program.

Even if not paid with the proceeds of that type of loan, 

the expenses are treated as paid or incurred within a reasonable period of time if both of the following requirements are met.

• The expenses relate to a specific academic period.

• The loan proceeds are disbursed within a period that 

begins 90 days before the start of that academic period and ends 90 days after the end of that academic 

period.

If neither of the above situations applies, the reasonable period of time is usually determined based on all the 

relevant facts and circumstances.

Academic period. An academic period includes a semester, trimester, quarter, or other period of study (such 

as a summer school session) as reasonably determined 

by an educational institution. If an educational institution 

uses credit hours or clock hours and doesn't have academic terms, each payment period can be treated as an 

academic period.

Eligible student. An eligible student is a student who 

was enrolled at least half-time in a program leading to a 

degree, certificate, or other recognized educational credential.

Enrolled at least half-time. A student was enrolled at 

least half-time if the student was taking at least half the 

normal full-time workload for his or her course of study.

The standard for what is half of the normal full-time 

workload is determined by each eligible educational institution. However, the standard may not be lower than any 

of those established by the U.S. Department of Education 

under the Higher Education Act of 1965.

Related person. You can't deduct interest on a loan you 

get from a related person. Related persons include:

• Your spouse;

• Your brothers and sisters;

• Your half brothers and half sisters;

• Your ancestors (parents, grandparents, etc.);

• Your lineal descendants (children, grandchildren, 

etc.); and

• Certain corporations, partnerships, trusts, and exempt 

organizations.

Qualified employer plan. You can't deduct interest on a 

loan made under a qualified employer plan or under a 

contract purchased under such a plan. 

Qualified Education Expenses

For purposes of the student loan interest deduction, these 

expenses are the total costs of attending an eligible educational institution. They include amounts paid for the following items.

• Tuition and fees.

• Room and board.

• Books, supplies, and equipment.

• Other necessary expenses (such as transportation).

The cost of room and board qualifies only to the extent 

it isn't more than:

• The allowance for room and board, as determined by 

the eligible educational institution, that was included in 

the cost of attendance (for federal financial aid purposes) for a particular academic period and living 

arrangement of the student; or

Page 32 Chapter 4 Student Loan Interest Deduction
• If greater, the actual amount charged if the student is 

residing in housing owned or operated by the eligible 

educational institution.

Eligible educational institution. An eligible educational 

institution is generally any accredited public, nonprofit, or 

proprietary (privately owned profit-making) college, university, vocational school, or other postsecondary educational institution. Also, the institution must be eligible to 

participate in a student aid program administered by the 

U.S. Department of Education. Virtually all accredited 

postsecondary institutions meet this definition.

An eligible educational institution also includes certain 

educational institutions located outside the United States 

that are eligible to participate in the U.S. Department of 

Education's Federal Student Aid (FSA) programs.

For purposes of the student loan interest deduction, an 

eligible educational institution also includes an institution 

conducting an internship or residency program leading to 

a degree or certificate from an institution of higher education, a hospital, or a health care facility that offers postgraduate training.

An educational institution must meet the above criteria 

only during the academic period(s) for which the student 

loan was incurred. The deductibility of interest on the loan 

isn't affected by the institution's subsequent loss of eligibility.

The educational institution should be able to tell 

you if it is an eligible educational institution.

Adjustments to Qualified Education 

Expenses

You must reduce your qualified education expenses by 

the total amount paid for them with the following tax-free 

items.

• Employer-provided educational assistance. See chapter 10.

• Tax-free distribution of earnings from a Coverdell education savings account (ESA). See Tax-Free Distributions in chapter 6.

• Tax-free distribution of earnings from a qualified tuition program (QTP). See Figuring the Taxable Portion 

of a Distribution in chapter 7.

• U.S. savings bond interest that you exclude from income because it is used to pay qualified education expenses. See chapter 9.

• The tax-free part of scholarships and fellowship 

grants. See Tax-Free Scholarships and Fellowship 

Grants in chapter 1.

• Veterans' educational assistance. See Veterans' Benefits in chapter 1.

• Any other nontaxable (tax-free) payments (other than 

gifts or inheritances) received as educational assistance.

TIP

Include as Interest

In addition to simple interest on the loan, if all other requirements are met, the items discussed below can be 

student loan interest.

Loan origination fee. In general, this is a one-time fee 

charged by the lender when a loan is made. To be deductible as interest, a loan origination fee must be for the use 

of money rather than for property or services (such as 

commitment fees or processing costs) provided by the 

lender. A loan origination fee treated as interest accrues 

over the life of the loan.

Loan origination fees weren't required to be reported on 

Form 1098-E, Student Loan Interest Statement, for loans 

made before September 1, 2004. If loan origination fees 

aren't included in the amount reported on your Form 

1098-E, you can use any reasonable method to allocate 

the loan origination fees over the term of the loan.

Capitalized interest. This is unpaid interest on a student 

loan that is added by the lender to the outstanding principal balance of the loan. Capitalized interest is treated as 

interest for tax purposes and is deductible as payments of 

principal are made on the loan. No deduction for capitalized interest is allowed in a year in which no loan payments were made.

Interest on revolving lines of credit. This interest, 

which includes interest on credit card debt, is student loan 

interest if the borrower uses the line of credit (credit card) 

only to pay qualified education expenses. See Qualified 

Education Expenses, earlier.

Interest on refinanced and consolidated student 

loans. This includes interest on a loan used solely to refinance a qualified student loan of the same borrower. It 

also includes a single consolidation loan used solely to refinance two or more qualified student loans of the same 

borrower.

If you refinance a qualified student loan for more 

than your original loan and you use the additional 

amount for any purpose other than qualified education expenses, you can't deduct any interest paid on the 

refinanced loan.

Allocating Payments Between Interest and 

Principal

The allocation of payments between interest and principal 

for tax purposes might not be the same as the allocation 

shown on the Form 1098-E or other statement you receive 

from the lender or loan servicer. To make the allocation for 

tax purposes, a payment generally applies first to stated 

interest that remains unpaid as of the date the payment is 

due, second to any loan origination fees allocable to the 

payment, third to any capitalized interest that remains unpaid as of the date the payment is due, and fourth to the 

outstanding principal.

CAUTION

!

Chapter 4 Student Loan Interest Deduction Page 33
Example. In August 2020, Peg took out a $10,000 student loan to pay the tuition for her senior year of college. 

The lender charged a 3% loan origination fee ($300) that 

was withheld from the funds Peg received. The interest 

(5% simple) on this loan accrued while she completed her 

senior year and for 6 months after she graduated. At the 

end of that period, the lender determined the amount to be 

repaid by capitalizing all accrued but unpaid interest 

($625 interest accrued from August 2020 through October 

2021) and adding it to the outstanding principal balance of 

the loan. The loan is payable over 60 months, with a payment of $200.51 due on the first of each month, beginning 

November 2021.

Peg didn't receive a Form 1098-E for 2021 from her 

lender because the amount of interest she paid didn't require the lender to issue an information return. However, 

she did receive an account statement from the lender that 

showed the following 2021 payments on her outstanding 

loan of $10,625 ($10,000 principal + $625 accrued but unpaid interest).

Payment Date Payment Stated Interest Principal

November 2021 $200.51 $44.27 $156.24

December 2021 $200.51 $43.62 $156.89

Totals $401.02 $87.89 $313.13

To determine the amount of interest that could be deducted on the loan for 2021, Peg starts with the total 

amount of stated interest she paid, $87.89. Next, she allocates the loan origination fee over the term of the loan 

($300 ÷ 60 months = $5 per month). A total of $10 ($5 of 

each of the two principal payments) should be treated as 

interest for tax purposes. Peg then applies the unpaid 

capitalized interest ($625) to the two principal payments in 

the order in which they were made, and determines that 

the remaining amount of principal of both payments is 

treated as interest for tax purposes. Assuming that Peg 

qualifies to claim the student loan interest deduction, she 

can deduct $401.02 ($87.89 + $10 + $303.13).

For 2022, Peg will continue to allocate $5 of the loan 

origination fee to the principal portion of each monthly 

payment she makes and treat that amount as interest for 

tax purposes. She will also apply the remaining amount of 

capitalized interest ($625 − $303.13 = $321.87) to the 

principal payments in the order in which they are made 

until the balance is zero, and treat those amounts as interest for tax purposes. 

Don't Include as Interest

You can't claim a student loan interest deduction for any 

of the following items.

• Interest you paid on a loan if, under the terms of the 

loan, you aren't legally obligated to make interest payments.

• Loan origination fees that are payments for property or 

services provided by the lender, such as commitment 

fees or processing costs.

• Interest you paid on a loan to the extent payments 

were made through your participation in the National 

Health Service Corps Loan Repayment Program (the 

NHSC Loan Repayment Program) or certain other 

loan repayment assistance programs. For more information, see Student Loan Repayment Assistance in 

chapter 5. 

When Must Interest Be Paid?

You can deduct all interest you paid during the year on 

your student loan, including voluntary payments, until the 

loan is paid off. 

Can You Claim the Deduction?

Generally, you can claim the deduction if all of the following requirements are met.

• Your filing status is any filing status except married filing separately.

• No one else is claiming you as a dependent on his or 

her tax return.

• You are legally obligated to pay interest on a qualified 

student loan.

• You paid interest on a qualified student loan.

Claiming you as a dependent. Another taxpayer is 

claiming you as a dependent if he or she lists your name 

and other required information on page 1 of his or her 

Form 1040, 1040-SR, or 1040-NR.

Example 1. During 2021, Josh paid $600 interest on 

his qualified student loan. Only he is legally obligated to 

make the payments. No one claimed Josh as a dependent 

for 2021. Assuming all other requirements are met, Josh 

can deduct the $600 of interest he paid on his 2021 Form 

1040 or 1040-SR.

Example 2. During 2021, Jo paid $1,100 interest on 

her qualified student loan. Only she is legally obligated to 

make the payments. Jo's parents claimed her as a dependent on their 2021 tax return. In this case, neither Jo 

nor her parents may deduct the student loan interest Jo 

paid in 2021.

Interest paid by others. If you are the person legally obligated to make interest payments and someone else 

makes a payment of interest on your behalf, you are treated as receiving the payments from the other person and, 

in turn, paying the interest.

Example 1. Darla obtained a qualified student loan to 

attend college. After Darla's graduation from college, she 

worked as an intern for a nonprofit organization. As part of 

the internship program, the nonprofit organization made 

an interest payment on behalf of Darla. This payment was 

treated as additional compensation and reported on her 

Form W-2, box 1. Assuming all other qualifications are 

Page 34 Chapter 4 Student Loan Interest Deduction
met, Darla can deduct this payment of interest on her tax 

return.

Example 2. Ethan obtained a qualified student loan to 

attend college. After graduating from college, the first 

monthly payment on his loan was due in December. As a 

gift, Ethan's mother made this payment for him. No one is 

claiming Ethan as a dependent on his or her tax return. 

Assuming all other qualifications are met, Ethan can deduct this payment of interest on his tax return.

No Double Benefit Allowed

You can't deduct as interest on a student loan any amount 

that is an allowable deduction under any other provision of 

the tax law (for example, home mortgage interest).

You also can't deduct as interest on a student loan any 

amount paid from a distribution of earnings made from a 

qualified tuition program (QTP) after 2018 to the extent 

the earnings are treated as tax free because they were 

used to pay student loan interest. For more information, 

see chapter 7.

For payments made after March 27, 2020, and before 

January 1, 2026, do not deduct as interest on a student 

loan any interest paid by your employer under an educational assistance program. See chapter 10.

Figuring the Deduction

Your student loan interest deduction is generally the 

smaller of:

• $2,500, or

• The interest you paid during the tax year.

However, the amount determined above may be phased 

out (gradually reduced) or eliminated based on your filing 

status and MAGI as explained below. You can use Worksheet 4-1 (at the end of this chapter) to figure both your 

MAGI and your deduction.

Form 1098-E. To help you figure your student loan interest deduction, you should receive Form 1098-E, Student 

Loan Interest Statement. Generally, an institution (such as 

a bank or governmental agency) that received interest 

payments of $600 or more during 2021 on one or more 

qualified student loans must send Form 1098-E (or an acceptable substitute) to each borrower by January 31, 

2022.

For qualified student loans taken out before September 

1, 2004, the institution is required to include on Form 

1098-E only payments of stated interest. Other interest 

payments, such as certain loan origination fees and capitalized interest, may not appear on the form you receive. 

However, if you pay qualifying interest that isn't included 

on Form 1098-E, you can also deduct those amounts. See 

Allocating Payments Between Interest and Principal, earlier.

The lender may ask for a completed Form W-9S or similar statement to obtain the borrower's name, address, and 

taxpayer identification number. The form may also be 

used by the borrower to certify that the student loan was 

incurred solely to pay for qualified education expenses.

Effect of the Amount of Your Income 

on the Amount of Your Deduction

The amount of your student loan interest deduction is 

phased out (gradually reduced) if your MAGI is between 

$70,000 and $85,000 ($140,000 and $170,000 if you file a 

joint return). You can't claim a student loan interest deduction if your MAGI is $85,000 or more ($170,000 or more if 

you file a joint return).

Modified adjusted gross income (MAGI). For most 

taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return before subtracting 

any deduction for student loan interest. However, as discussed below, there may be other modifications.

Table 4-2 shows how the amount of your MAGI can affect your student loan interest deduction.

Effect of MAGI on Student Loan 

Interest Deduction

IF your filing 

status is... AND your MAGI is...

THEN your student loan 

interest deduction is...

single, 

head of 

household, or 

qualifying 

widow(er)

not more than $70,000 not affected by the phaseout.

more than $70,000 

but less than

$85,000

reduced because of the 

phaseout.

$85,000 or more eliminated by the phaseout.

married filing 

joint return

not more than $140,000 not affected by the phaseout.

more than $140,000

but less than $170,000

reduced because of the 

phaseout.

$170,000 or more eliminated by the phaseout.

MAGI when using Form 1040 or 1040-SR. If you file 

Form 1040 or 1040-SR, your MAGI is the AGI on line 11 of 

that form figured without taking into account any amount 

on Schedule 1 (Form 1040), line 21 (student loan interest 

deduction), and modified by adding back any:

1. Foreign earned income exclusion,

2. Foreign housing exclusion,

3. Foreign housing deduction,

4. Exclusion of income by bona fide residents of American Samoa, and

5. Exclusion of income by bona fide residents of Puerto 

Rico.

MAGI when using Form 1040-NR. If you file Form 

1040-NR, your MAGI is the AGI on line 11 of that form figured without taking into account any amount on Schedule 

1 (Form 1040), line 21 (student loan interest deduction).

Phaseout. If your MAGI is within the range of incomes 

where the credit must be reduced, you must figure your 

reduced deduction. To figure the phaseout, multiply your 

interest deduction (before the phaseout, but not more than 

Table 4-2.

Chapter 4 Student Loan Interest Deduction Page 35
$2,500) by a fraction. The numerator (top part) is your 

MAGI minus $70,000 ($140,000 in the case of a joint return). The denominator (bottom part) is $15,000 ($30,000 

in the case of a joint return). Subtract the result from your 

deduction (before the phaseout) to give you the amount 

you can deduct.

Example 1. During 2021, you paid $800 interest on a 

qualified student loan. Your 2021 MAGI is $155,000 and 

you are filing a joint return. You must reduce your deduction by $400, figured as follows.

$800 ×

$155,000 − $140,000

$30,000 = $400

Your reduced student loan interest deduction is $400 

($800 − $400).

Example 2. The facts are the same as in Example 1, 

except that you paid $2,750 interest. Your maximum deduction for 2021 is $2,500. You must reduce your maximum deduction by $1,250, figured as follows.

$2,500 ×

$155,000 − $140,000

$30,000 = $1,250

In this example, your reduced student loan interest deduction is $1,250 ($2,500 − $1,250).

Which Worksheet To Use

Generally, you figure the deduction using the Student 

Loan Interest Deduction Worksheet in the Schedule 1 

(Form 1040) instructions included in the Instructions for 

Form 1040 (and 1040-SR). However, if you are filing Form 

2555, Foreign Earned Income; Form 4563, Exclusion of 

Income for Bona Fide Residents of American Samoa; or 

you are excluding income from sources within Puerto 

Rico, you must complete Worksheet 4-1. 

Claiming the Deduction

The student loan interest deduction is an adjustment to income. To claim the deduction, enter the allowable amount 

on Schedule 1 (Form 1040), line 21.

Page 36 Chapter 4 Student Loan Interest Deduction
Student Loan Interest Deduction Worksheet

Keep for Your Records

Use this worksheet instead of the worksheet in the Schedule 1 (Form 1040) instructions if you are 

filing Form 2555 or 4563, or you are excluding income from sources within Puerto Rico. Before 

using this worksheet, you must complete Form 1040 or 1040-SR, line 9, and Schedule 1 (Form 

1040), lines 11 through 20, and 23 and 25.

 1. Enter the total interest you paid in 2021 on qualified student loans. Don't enter 

more than $2,500 .................................................................... 1.

 2. Enter the amount from Form 1040 or 1040-SR, line 9 .................... 2.

 3. Enter the total of the amounts from Schedule 1 (Form 1040), lines 11 through 

20, and 23 and 25 ............................................... 3.

 4. Subtract line 3 from line 2 .......................................... 4.

 5. Enter any foreign earned income exclusion and/or housing 

exclusion (Schedule 1 (Form 1040), line 8d) ........................... 5.

 6. Enter any foreign housing deduction (Schedule 1 (Form 1040), line 24j) ..... 6.

 7. Enter the amount of income from Puerto Rico you are excluding ........... 7.

 8. Enter the amount of income from American Samoa you are 

excluding (Form 4563, line 15) ...................................... 8.

 9. Add lines 4 through 8. This is your modified adjusted gross income ........................... 9.

10. Enter the amount shown below for your filing status .......................................... 10.

• Single, head of household, or qualifying widow(er)—$70,000

• Married filing jointly—$140,000

11. Is the amount on line 9 more than the amount on line 10?

No. Skip lines 11 and 12, enter -0- on line 13, and go to line 14.

Yes. Subtract line 10 from line 9 ...................................................... 11.

12. Divide line 11 by $15,000 ($30,000 if married filing jointly). Enter the result as a decimal 

(rounded to at least three places). If the result is 1.000 or more, enter 1.000 ....................... 12. .

13. Multiply line 1 by line 12 ................................................................ 13.

14. Student loan interest deduction. Subtract line 13 from line 1. Enter the result here 

and on Schedule 1 (Form 1040), line 21. Don't include this amount in figuring any other 

deduction on your return (such as on Schedule A, C, E, etc.) ................................... 14.

Worksheet 4-1.

Chapter 4 Student Loan Interest Deduction Page 37
5.

Student Loan 

Cancellations and 

Repayment Assistance

What’s New

The American Rescue Plan Act of 2021 modified the treatment of 

student loan forgiveness for discharges in 2021 through 2025.

Introduction

Generally, if you are responsible for making loan payments, and the loan is canceled or repaid by someone 

else, you must include the amount that was canceled or 

paid on your behalf in your gross income for tax purposes. 

However, in certain circumstances, you may be able to 

exclude this amount from gross income if the loan was 

one of the following.

• A loan for postsecondary educational expenses.

• A private education loan.

• A loan from an educational organization described in 

section 170(b)(1)(A)(ii).

• A loan from an organization exempt from tax under 

section 501(a) to refinance a student loan.

Loan for Postsecondary 

Educational Expenses

This is any loan provided expressly for postsecondary education, regardless of whether provided through the educational institution or directly to the borrower, if such loan 

was made, insured, or guaranteed by one of the following.

• The United States, or an instrumentality or agency 

thereof.

• A state, territory, or possession of the United States; 

or the District of Columbia; or any political subdivision 

thereof.

• An eligible educational institution.

Eligible educational institution An eligible educational 

institution is generally any accredited public, nonprofit, or 

proprietary (privately owned profit-making) college, university, vocational school, or other postsecondary educational institution. Also, the institution must be eligible to 

participate in a student aid program administered by the 

U.S. Department of Education. Virtually all accredited 

postsecondary institutions meet this definition.

An eligible educational institution also includes certain 

educational institutions located outside the United States 

that are eligible to participate in a student aid program administered by the U.S. Department of Education.

The educational institution should be able to tell 

you if it is an eligible educational institution.

Private Education Loan

A private education loan is a loan provided by a private 

educational lender that:

• Is not made, insured, or guaranteed under Title IV of 

the Higher Education Act of 1965, and

• Is issued expressly for postsecondary educational expenses to a borrower, regardless of whether the loan 

is provided through the educational institution that the 

student attends or directly to the borrower from the private educational lender. A private education loan 

does not include an extension of credit under an open 

end consumer credit plan, a reverse mortgage transaction, a residential mortgage transaction, or any 

other loan that is secured by real property or a dwelling.

Private educational lender. A private educational 

lender is one of the following.

• A financial institution that solicits, makes, or extends 

private education loans.

• A federal credit union that solicits, makes, or extends 

private education loans.

• Any other person engaged in the business of soliciting, making, or extending private education loans.

The cancellation of your loan won't qualify for 

tax-free treatment if it is canceled because of 

services you performed for the private educational lender that made the loan or other organization that 

provided the funds.

Loan From an Educational 

Organization Described in 

Section 170(b)(1)(A)(ii)

This is any loan made by the organization if the loan is 

made:

• As part of an agreement with an entity described earlier under which the funds to make the loan were provided to the educational organization; or

• Under a program of the educational organization that 

is designed to encourage its students to serve in occupations with unmet needs or in areas with unmet 

needs where the services provided by the students (or 

former students) are for or under the direction of a 

TIP

CAUTION

!

Page 38 Chapter 5 Student Loan Cancellations and Repayment Assistance
governmental unit or a tax-exempt section 501(c)(3) 

organization.

Educational organization described in section 170(b)

(1)(A)(ii). This is an educational institution that maintains 

a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place 

where it carries on its educational activities.

Section 501(c)(3) organization. This is any corporation, community chest, fund, or foundation organized and 

operated exclusively for one or more of the following purposes.

• Charitable.

• Religious.

• Educational.

• Scientific.

• Literary.

• Testing for public safety.

• Fostering national or international amateur sports 

competition (but only if none of its activities involve 

providing athletic facilities or equipment).

• The prevention of cruelty to children or animals.

The cancellation of your loan won't qualify for 

tax-free treatment if it is canceled because of 

services you performed for the educational organization that made the loan or other organization that provided the funds.

Refinanced Loan

If you refinanced a student loan with another loan from an 

educational organization or a tax-exempt organization, the 

cancellation of that loan may also be treated as discussed 

above. This applies if the new loan is made under a program of the refinancing organization that is designed to 

encourage students to serve in occupations with unmet 

needs or in areas with unmet needs where the services 

required of the students are for or under the direction of a 

governmental unit or a tax-exempt section 501(c)(3) organization (defined earlier).

Student Loan Repayment 

Assistance

Student loan repayments made to you are tax free if you 

received them for any of the following.

• The National Health Service Corps Loan Repayment 

Program (NHSC Loan Repayment Program).

• A state education loan repayment program eligible for 

funds under the Public Health Service Act.

• Any other state loan repayment or loan forgiveness 

program that is intended to provide for the increased 

CAUTION

!

availability of health services in underserved or health 

professional shortage areas (as determined by such 

state).

You can't deduct the interest you paid on a student loan to the extent payments were made 

through your participation in the above programs.

6.

Coverdell Education 

Savings Account (ESA)

Introduction

If your modified adjusted gross income (MAGI) is less 

than $110,000 ($220,000 if filing a joint return), you may 

be able to establish a Coverdell ESA to finance the qualified education expenses of a designated beneficiary. For 

most taxpayers, MAGI is the adjusted gross income as 

figured on their federal income tax return.

Total contributions for the beneficiary in any year can't 

be more than $2,000, no matter how many separate Coverdell ESAs have been established for the beneficiary. 

See Contributions, later.

This benefit applies not only to higher education 

expenses, but also to elementary and secondary 

education expenses.

What is the tax benefit of the Coverdell ESA? Contributions to a Coverdell ESA aren't deductible, but amounts 

deposited in the account grow tax free until distributed.

If, for a year, distributions from an account aren't more 

than a designated beneficiary's qualified education expenses at an eligible educational institution, the beneficiary 

won't owe tax on the distributions. See Tax-Free Distributions, later.

Table 6-1 summarizes the main features of the Coverdell ESA.

CAUTION

!

TIP

Chapter 6 Coverdell Education Savings Account (ESA) Page 39
Coverdell ESA at a Glance

Don't rely on this table alone. It provides 

only general highlights. See the text for 

definitions of terms and for more complete 

explanations.

Table 6-1.

Question Answer

What is a Coverdell 

ESA?

A savings account that is set up to pay 

the qualified education expenses of a 

designated beneficiary. 

Where can it be 

established?

It can be opened in the United States at 

any bank or other IRS-approved entity 

that offers Coverdell ESAs. 

Who can have a 

Coverdell ESA?

Any beneficiary who is under age 18 or 

is a special needs beneficiary. 

Who can contribute to 

a Coverdell ESA?

Generally, any individual (including the 

beneficiary) whose modified adjusted 

gross income for the year is less than 

$110,000 ($220,000 in the case of a 

joint return). 

Are distributions tax 

free?

Yes, if the distributions aren't more than 

the beneficiary's adjusted qualified 

education expenses for the year. 

What Is a Coverdell ESA?

A Coverdell ESA is a trust or custodial account created or 

organized in the United States only for the purpose of paying the qualified education expenses of the Designated 

beneficiary (defined later) of the account.

When the account is established, the designated beneficiary must be under age 18 or a special needs beneficiary.

To be treated as a Coverdell ESA, the account must be 

designated as a Coverdell ESA when it is created.

The document creating and governing the account 

must be in writing and must satisfy the following requirements.

1. The trustee or custodian must be a bank or an entity 

approved by the IRS.

2. The document must provide that the trustee or custodian can only accept a contribution that meets all of 

the following conditions.

a. The contribution is in cash.

b. The contribution is made before the beneficiary 

reaches age 18, unless the beneficiary is a special 

needs beneficiary.

c. The contribution wouldn't result in total contributions for the year (not including rollover contributions) being more than $2,000.

3. Money in the account can't be invested in life insurance contracts.

4. Money in the account can't be combined with other 

property except in a common trust fund or common 

investment fund.

5. The balance in the account must generally be distributed within 30 days after the earlier of the following 

events.

a. The beneficiary reaches age 30, unless the beneficiary is a special needs beneficiary.

b. The beneficiary's death.

Qualified Education Expenses

Generally, these are expenses required for the enrollment 

or attendance of the designated beneficiary at an eligible 

educational institution. The expenses can be either qualified higher education expenses or qualified elementary 

and secondary education expenses.

Designated beneficiary. This is the individual named in 

the document creating the trust or custodial account to receive the benefit of the funds in the account.

Contributions to a qualified tuition program (QTP). A 

contribution to a QTP is a qualified education expense if 

the contribution is on behalf of the designated beneficiary 

of the Coverdell ESA. In the case of a change in beneficiary, this is a qualified expense only if the new beneficiary is a family member of that designated beneficiary. 

See chapter 7.

Eligible Educational Institution

An eligible educational institution can be either an eligible 

postsecondary school or an eligible elementary or secondary school.

Eligible postsecondary school. An eligible postsecondary school is generally any accredited public, nonprofit, 

or proprietary (privately owned profit-making) college, university, vocational school, or other postsecondary educational institution. Also, the institution must be eligible to 

participate in a student aid program administered by the 

U.S. Department of Education. Virtually all accredited 

postsecondary institutions meet this definition. The educational institution should be able to tell you if it is an eligible educational institution.

An eligible educational institution also includes certain 

educational institutions located outside the United States 

that are eligible to participate in a student aid program administered by the U.S. Department of Education.

Eligible elementary or secondary school. An eligible 

elementary or secondary school is any public, private, or 

religious school that provides elementary or secondary 

education (kindergarten through grade 12), as determined 

under state law.

Page 40 Chapter 6 Coverdell Education Savings Account (ESA)
Qualified Higher Education Expenses

These are expenses related to enrollment or attendance 

at an eligible postsecondary school. As shown in the following list, to be qualified, some of the expenses must be 

required by the school and some must be incurred by students who are enrolled at least half-time.

1. The following expenses must be required for enrollment or attendance of a designated beneficiary at an 

eligible postsecondary school.

a. Tuition and fees.

b. Books, supplies, and equipment.

2. Expenses for special needs services needed by a 

special needs beneficiary must be incurred in connection with enrollment or attendance at an eligible postsecondary school.

3. Expenses for room and board must be incurred by 

students who are enrolled at least half-time (defined 

below).

The expense for room and board qualifies only to 

the extent that it isn't more than the greater of the following two amounts.

a. The allowance for room and board, as determined 

by the school, that was included in the cost of attendance (for federal financial aid purposes) for a 

particular academic period and living arrangement 

of the student.

b. The actual amount charged if the student is residing in housing owned or operated by the school.

You may need to contact the eligible educational institution for qualified room and board costs.

4. The purchase of computer or peripheral equipment, 

computer software, or Internet access and related 

services if it is to be used primarily by the beneficiary 

during any of the years the beneficiary is enrolled at 

an eligible postsecondary school. (This doesn’t include expenses for computer software for sports, 

games, or hobbies unless the software is predominantly educational in nature.)

Half-time student. A student is enrolled “at least 

half-time” if he or she is enrolled for at least half the 

full-time academic workload for the course of study the 

student is pursuing, as determined under the standards of 

the school where the student is enrolled.

Qualified Elementary and

Secondary Education Expenses

These are expenses related to enrollment or attendance 

at an eligible elementary or secondary school. As shown 

in the following list, to be qualified, some of the expenses 

must be required or provided by the school. There are 

special rules for computer-related expenses.

1. The following expenses must be incurred by a designated beneficiary in connection with enrollment or 

attendance at an eligible elementary or secondary 

school.

a. Tuition and fees.

b. Books, supplies, and equipment.

c. Academic tutoring.

d. Special needs services for a special needs beneficiary.

2. The following expenses must be required or provided 

by an eligible elementary or secondary school in connection with attendance or enrollment at the school.

a. Room and board.

b. Uniforms.

c. Transportation.

d. Supplementary items and services (including extended day programs).

3. The purchase of computer or peripheral equipment, 

computer software, fiber optic cables related to computer use, or Internet access and related services is a 

qualified elementary and secondary education expense if it is to be used by the beneficiary and the 

beneficiary's family during any of the years the beneficiary is in elementary or secondary school. (This 

doesn't include expenses for computer software designed for sports, games, or hobbies unless the software is predominantly educational in nature.)

Contributions

Any individual (including the designated beneficiary) can 

contribute to a Coverdell ESA if the individual's MAGI (defined later under Contribution Limits) for the year is less 

than $110,000. For individuals filing joint returns, that 

amount is $220,000.

Organizations, such as corporations and trusts, can 

also contribute to Coverdell ESAs. There is no requirement that an organization's income be below a certain 

level.

Contributions must meet all of the following requirements.

1. They must be in cash.

2. They can't be made after the beneficiary reaches age 

18, unless the beneficiary is a special needs beneficiary.

3. They must be made by the due date of the contributor's tax return (not including extensions).

Contributions can be made to one or several Coverdell 

ESAs for the same designated beneficiary provided that 

the total contributions aren't more than the contribution 

limits (defined later) for a year.

Chapter 6 Coverdell Education Savings Account (ESA) Page 41
Contributions can be made, without penalty, to both a 

Coverdell ESA and a QTP in the same year for the same 

beneficiary.

Table 6-2 summarizes many of the features of contributing to a Coverdell ESA. 

Coverdell ESA Contributions

at a Glance

Don't rely on this table alone. It provides 

only general highlights. See the text for 

more complete explanations.

Question Answer

Are contributions 

deductible?

No. 

What is the annual 

contribution limit per 

designated beneficiary?

$2,000 for each designated 

beneficiary. 

What if more than one 

Coverdell ESA has been 

opened for the same 

designated beneficiary?

The annual contribution limit 

is $2,000 for each 

beneficiary, no matter how 

many Coverdell ESAs are 

set up for that beneficiary. 

What if more than one 

individual makes 

contributions for the same 

designated beneficiary?

The annual contribution limit 

is $2,000 per beneficiary, no 

matter how many individuals 

contribute. 

Can contributions other 

than cash be made to a 

Coverdell ESA?

No. 

When must contributions 

stop?

No contributions can be 

made to a beneficiary's 

Coverdell ESA after he or 

she reaches age 18, unless 

the beneficiary is a special 

needs beneficiary. 

When contributions are considered made. Contributions made to a Coverdell ESA for the preceding tax year 

are considered to have been made on the last day of the 

preceding year. They must be made by the due date (not 

including extensions) for filing your return for the preceding year.

For example, if you make a contribution to a Coverdell 

ESA in February 2022, and you designate it as a contribution for 2021, you are considered to have made that contribution on December 31, 2021.

Contribution Limits

There are two yearly limits.

1. One on the total amount that can be contributed for 

each designated beneficiary in any year.

2. One on the amount that any individual can contribute 

for any one designated beneficiary for a year.

Table 6-2.

Limit for each designated beneficiary. For 2021, the 

total of all contributions to all Coverdell ESAs set up for 

the benefit of any one designated beneficiary can't be 

more than $2,000. This includes contributions (other than 

rollovers) to all the beneficiary's Coverdell ESAs from all 

sources. Rollovers are discussed under Rollovers and 

Other Transfers, later.

Example. When Maria Luna was born in 2020, three 

separate Coverdell ESAs were set up for her, one by her 

parents, one by her grandfather, and one by her aunt. In 

2021, the total of all contributions to Maria's three Coverdell ESAs can't be more than $2,000. For example, if her 

grandfather contributed $2,000 to one of her Coverdell 

ESAs, no one else could contribute to any of her three accounts. Or, if her parents contributed $1,000 and her aunt 

$600, her grandfather or someone else could contribute 

no more than $400. These contributions could be put into 

any of Maria's Coverdell ESA accounts.

Limit for each contributor. Generally, you can contribute up to $2,000 for each designated beneficiary for 2021. 

This is the most you can contribute for the benefit of any 

one beneficiary for the year, regardless of the number of 

Coverdell ESAs set up for the beneficiary.

Example. The facts are the same as in the previous 

example except that Maria Luna's older brother, Edgar, 

also has a Coverdell ESA. If their grandfather contributed 

$2,000 to Maria's Coverdell ESA in 2021, he could also 

contribute $2,000 to Edgar's Coverdell ESA.

Reduced limit. Your contribution limit may be reduced. If your MAGI (defined later) is between $95,000 

and $110,000 (between $190,000 and $220,000 if filing a 

joint return), the $2,000 limit for each designated beneficiary is gradually reduced (see Figuring the limit, later). If 

your MAGI is $110,000 or more ($220,000 or more if filing 

a joint return), you can't contribute to anyone's Coverdell 

ESA.

Modified adjusted gross income (MAGI). For most 

taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return.

MAGI when using Form 1040 or 1040-SR. If you file 

Form 1040 or 1040-SR, your MAGI is the AGI on line 11 of 

that form, modified by adding back any:

1. Foreign earned income exclusion,

2. Foreign housing exclusion,

3. Foreign housing deduction,

4. Exclusion of income by bona fide residents of American Samoa, and

5. Exclusion of income by bona fide residents of Puerto 

Rico.

If you have any of these adjustments, you can use 

Worksheet 6-1 to figure your MAGI for Form 1040 or 

1040-SR.

MAGI when using Form 1040-NR. If you file Form 

1040-NR, your MAGI is the AGI on line 11 of that form.

Page 42 Chapter 6 Coverdell Education Savings Account (ESA)
Worksheet 6-1. MAGI for a Coverdell ESA

1. Enter your adjusted gross income 

(Form 1040 or 1040-SR, line 11) ...... 1.

2. Enter your foreign earned 

income exclusion and/or 

housing exclusion (Form 

2555, line 45) .......... 2.

3. Enter your foreign housing 

deduction (Form 2555, 

line 50) ............... 3.

4. Enter the amount of 

income from Puerto Rico 

you’re excluding ........ 4.

5. Enter the amount of 

income from American 

Samoa you’re excluding 

(Form 4563, 

line 15) ............... 5.

6. Add lines 2, 3, 4, and 5 .............. 6.

7. Add lines 1 and 6. This is your modified 

adjusted gross income ............. 7.

Figuring the limit. To figure the limit on the amount you 

can contribute for each designated beneficiary, multiply 

$2,000 by a fraction. The numerator (top part) is your 

MAGI minus $95,000 ($190,000 if filing a joint return). The 

denominator (bottom part) is $15,000 ($30,000 if filing a 

joint return). Subtract the result from $2,000. This is the 

amount you can contribute for each beneficiary. You can 

use Worksheet 6-2 to figure the limit on contributions.

Coverdell ESA

Contribution Limit

1. Maximum contribution ............... 1. $ 2,000

2. Enter your modified adjusted gross 

income (MAGI) for purposes of figuring 

the contribution limit to a Coverdell ESA 

(see definition or Worksheet 6-1) ...... 2.

3. Enter $190,000 if married filing jointly; 

$95,000 for all other filers ............ 3.

4. Subtract line 3 from line 2. If zero or less, 

enter -0- on line 4, skip lines 5 through 7, 

and enter $2,000 on line 8 ............ 4.

5. Enter $30,000 if married filing jointly; 

$15,000 for all other filers ............ 5.

Note. If the amount on line 4 is greater 

than or equal to the amount on line 5, 

stop here. You aren't allowed to 

contribute to a Coverdell ESA for 2021.

6. Divide line 4 by line 5 and enter the result 

as a decimal (rounded to at least 3 

places) ........................... 6.   .

7. Multiply line 1 by line 6 ............... 7.

8. Subtract line 7 from line 1 ............ 8.

Note. The total Coverdell ESA contributions from all sources for the 

designated beneficiary during the tax year may not exceed $2,000.

Example. Paul, who is single, had MAGI of $96,500 

for 2021. Paul can contribute up to $1,800 in 2021 for 

each beneficiary, as shown in the illustrated Worksheet 

6-2. 

Worksheet 6-2.

Chapter 6 Coverdell Education Savings Account (ESA) Page 43
Coverdell ESA Contribution 

Limit—Illustrated

1. Maximum contribution ............... 1. $ 2,000

2. Enter your modified adjusted gross 

income (MAGI) for purposes of figuring 

the contribution limit to a Coverdell ESA 

(see definition or Worksheet 6-1) ...... 2. 96,500

3. Enter $190,000 if married filing jointly; 

$95,000 for all other filers ............ 3. 95,000

4. Subtract line 3 from line 2. If zero or less, 

enter -0- on line 4, skip lines 5 through 7, 

and enter $2,000 on line 8 ............ 4. 1,500

5. Enter $30,000 if married filing jointly; 

$15,000 for all other filers ............ 5. 15,000

Note. If the amount on line 4 is greater 

than or equal to the amount on line 5, 

stop here. You aren't allowed to 

contribute to a Coverdell ESA for 2021.

6. Divide line 4 by line 5 and enter the result 

as a decimal (rounded to at least 3 

places) ........................... 6.   .100

7. Multiply line 1 by line 6 ............... 7. 200

8. Subtract line 7 from line 1 ............ 8. 1,800

Note. The total Coverdell ESA contributions from all sources for the 

designated beneficiary during the tax year may not exceed $2,000.

Additional Tax on

Excess Contributions

The beneficiary may owe a 6% excise tax each year on 

excess contributions that are in a Coverdell ESA at the 

end of the year. Excess contributions are the total of the 

following two amounts.

1. Contributions to any designated beneficiary's Coverdell ESA for the year that are more than $2,000 (or, if 

less, the total of each contributor's limit for the year, 

as discussed earlier).

2. Excess contributions for the preceding year, reduced 

by the total of the following two amounts.

a. Distributions (other than those rolled over, as discussed later) during the year.

b. The contribution limit for the current year minus 

the amount contributed for the current year.

Exceptions. The excise tax doesn't apply if excess contributions made during 2021 (and any earnings on them) 

are distributed before the first day of the sixth month of the 

following tax year (June 1, 2022, for a calendar year taxpayer).

However, you must include the distributed earnings in 

gross income for the year in which the excess contribution 

was made. You should receive Form 1099-Q, Payments 

From Qualified Education Programs, from each institution 

from which excess contributions were distributed. Box 2 of 

Worksheet 6-2. that form will show the amount of earnings on your excess 

contributions. Code “2” or “3” entered in the blank box below boxes 5 and 6 indicates the year in which the earnings 

are taxable. See Instructions for Recipient of your Form 

1099-Q, on the back of Copy B. Enter the amount of earnings on Schedule 1 (Form 1040), line 8z, for the applicable tax year. For more information, see Taxable Distributions, later.

The excise tax doesn't apply to any rollover contribution.

Note. Contributions made in one year for the preceding tax year are considered to have been made on the last 

day of the preceding year.

Example. In 2020, Greta's parents and grandparents 

contributed a total of $2,300 to Greta's Coverdell 

ESA—an excess contribution of $300. Because Greta 

didn't withdraw the excess before June 1, 2021, she had 

to pay an additional tax of $18 (6% × $300) when she filed 

her 2020 tax return.

In 2021, excess contributions of $500 were made to 

Greta's account; however, she withdrew $250 from that 

account to use for qualified education expenses. Using 

the steps shown earlier under Additional Tax on Excess 

Contributions, Greta figures the excess contribution in her 

account at the end of 2021 as follows.

(1) $500 excess contributions 

made in 2021

+ (2) $300 excess contributions in 

ESA at end of 2020

− (2a) $250 distribution during 2021

$550 excess at end of 2021 × 6% = $33

If Greta limits 2022 contributions to $1,450 ($2,000 maximum allowed − $550 excess contributions from 2021), 

she won't owe any additional tax in 2022 for excess contributions.

Figuring and reporting the additional tax. You figure 

this excise tax on Form 5329, Part V. Report the additional 

tax on Schedule 2 (Form 1040), line 8.

Rollovers and Other Transfers

Assets can be rolled over from one Coverdell ESA to another or the designated beneficiary can be changed. The 

beneficiary's interest can be transferred to a spouse or 

former spouse because of divorce.

Rollovers

Any amount distributed from a Coverdell ESA isn't taxable 

if it is rolled over to another Coverdell ESA for the benefit 

of the same beneficiary or a member of the beneficiary's 

family (including the beneficiary's spouse) who is under 

Page 44 Chapter 6 Coverdell Education Savings Account (ESA)
age 30. This age limitation doesn't apply if the new beneficiary is a special needs beneficiary.

An amount is rolled over if it is paid to another Coverdell ESA within 60 days after the date of the distribution.

Don't report qualifying rollovers (those that meet the 

above criteria) anywhere on Form 1040, 1040-SR, or 

1040-NR. These aren't taxable distributions.

Members of the beneficiary's family. For these purposes, the beneficiary's family includes the beneficiary's 

spouse and the following other relatives of the beneficiary.

1. Son, daughter, stepchild, foster child, adopted child, 

or a descendant of any of them.

2. Brother, sister, stepbrother, or stepsister.

3. Father or mother or ancestor of either.

4. Stepfather or stepmother.

5. Son or daughter of a brother or sister.

6. Brother or sister of father or mother.

7. Son-in-law, daughter-in-law, father-in-law, 

mother-in-law, brother-in-law, or sister-in-law.

8. The spouse of any individual listed above.

9. First cousin.

Example. When Aaron graduated from college in January last year, he had $5,000 left in his Coverdell ESA. He 

wanted to give this money to his younger sister, who was 

still in high school. In order to avoid paying tax on the distribution of the amount remaining in his account, Aaron 

contributed the same amount to his sister's Coverdell ESA 

within 60 days of the distribution.

You can make only one rollover from a Coverdell 

ESA to another Coverdell ESA in any 12-month 

period regardless of the number of Coverdell 

ESAs you own. However, you can make unlimited transfers from one Coverdell ESA trustee directly to another 

Coverdell ESA trustee because such transfers aren't considered to be distributions or rollovers. The limit of one 

rollover during any 12-month period doesn't apply to the 

rollover of a military death gratuity or Servicemembers' 

Group Life Insurance (SGLI) payment.

Military death gratuity. If you received a military death 

gratuity or a payment from Servicemembers' Group Life 

Insurance (SGLI), you may roll over all or part of the 

amount received to one or more Coverdell ESAs for the 

benefit of members of the beneficiary's family (see Members of the beneficiary's family, earlier). Such payments 

are made to an eligible survivor upon the death of a member of the U.S. Armed Forces. The contribution to a Coverdell ESA from survivor benefits received can't be made 

later than 1 year after the date on which you receive the 

gratuity or SGLI payment.

This rollover contribution isn't subject to (but is in addition to) the contribution limits discussed earlier under Contribution Limits. The amount you roll over can't exceed the 

CAUTION

!

total survivor benefits you received, reduced by contributions from these benefits to a Roth IRA or other Coverdell 

ESAs.

The amount contributed from the survivor benefits is 

treated as part of your basis (cost) in the Coverdell ESA, 

and won't be taxed when distributed. See Distributions, 

later.

The limit of one rollover during any 12-month period doesn't apply to the rollover of a military 

death gratuity or SGLI payment.

Changing the Designated Beneficiary

The designated beneficiary can be changed. See Members of the beneficiary's family, earlier. There aren't any 

tax consequences if, at the time of the change, the new 

beneficiary is under age 30 or is a special needs beneficiary.

Example. Assume the same situation for Aaron as in 

the last example (see Rollovers, earlier). Instead of closing his Coverdell ESA and paying the distribution into his 

sister's Coverdell ESA, Aaron could have instructed the 

trustee of his account to simply change the name of the 

beneficiary on his account to that of his sister.

Transfer Because of Divorce

If a spouse or former spouse receives a Coverdell ESA 

under a divorce or separation instrument, it isn't a taxable 

transfer. After the transfer, the spouse or former spouse 

treats the Coverdell ESA as his or her own.

Example. In their divorce settlement, Peg received her 

ex-husband's Coverdell ESA. In this process, the account 

was transferred into her name. Peg now treats the funds 

in this Coverdell ESA as if she were the original owner.

Distributions

The designated beneficiary of a Coverdell ESA can take a 

distribution at any time. Whether the distributions are tax 

free depends, in part, on whether the distributions are 

equal to or less than the amount of Adjusted qualified education expenses (AQEE) (defined later) the beneficiary 

has in the same tax year.

See Table 6-3 for highlights.

CAUTION

!

Chapter 6 Coverdell Education Savings Account (ESA) Page 45
Coverdell ESA Distributions

at a Glance

Don't rely on this table alone. It provides 

only general highlights. See the text for 

definitions of terms and for more complete 

explanations.

Table 6-3.

Question Answer

Is a distribution from a 

Coverdell ESA to pay for a 

designated beneficiary's 

qualified education 

expenses tax free?

Generally, yes, to the extent 

the amount of the distribution 

isn't more than the designated 

beneficiary's adjusted qualified 

education expenses. 

After the designated 

beneficiary completes his or 

her education at an eligible 

educational institution, can 

amounts remaining in the 

Coverdell ESA be 

distributed?

Yes. Amounts must be 

distributed when the 

designated beneficiary 

reaches age 30, unless he or 

she is a special needs 

beneficiary. Also, certain 

transfers to members of the 

beneficiary's family are 

permitted. 

Does the designated 

beneficiary need to be 

enrolled for a minimum 

number of courses to claim 

tax-free distribution?

No. 

Adjusted qualified education expenses (AQEE). To 

determine if total distributions for the year are more than 

the amount of qualified education expenses, reduce total 

qualified education expenses by any tax-free educational 

assistance. Tax-free educational assistance includes:

• The tax-free part of scholarships and fellowship grants 

(see Tax-Free Scholarships and Fellowship Grants in 

chapter 1);

• Veterans' educational assistance (see Veterans' Benefits in chapter 1);

• The tax-free part of Pell grants (see Pell Grants and 

Other Title IV Need-Based Education Grants in chapter 1);

• Employer-provided educational assistance (see chapter 10); and

• Any other nontaxable (tax-free) payments (other than 

gifts or inheritances) received as educational assistance.

The amount you get by subtracting tax-free educational 

assistance from your total qualified education expenses is 

your adjusted qualified education expenses (AQEE). 

Tax-Free Distributions

Generally, distributions are tax free if they aren't more 

than the beneficiary's adjusted qualified education expenses for the year. Don't report tax-free distributions (including qualifying rollovers) on your tax return.

Taxable Distributions

A portion of the distributions is generally taxable to the 

beneficiary if the total distributions are more than the beneficiary's adjusted qualified education expenses for the 

year.

Excess distribution. This is the part of the total distribution that is more than the beneficiary's adjusted qualified 

education expenses for the year.

Earnings and basis. You will receive a Form 1099-Q for 

each of the Coverdell ESAs from which money was distributed in 2021. The amount of your gross distribution will 

be shown in box 1. For 2021, instead of dividing the gross 

distribution between your earnings (box 2) and your basis 

(amount already taxed) (box 3), the payer or trustee may 

report the fair market value (account balance) of the Coverdell ESA as of December 31, 2021. This will be shown 

in the blank box below boxes 5 and 6.

The amount contributed from survivor benefits (see 

Military death gratuity, earlier) is treated as part of your 

basis and won't be taxed when distributed.

Figuring the Taxable

Portion of a Distribution

The taxable portion is the amount of the excess distribution that represents earnings that have accumulated tax 

free in the account. Figure the taxable portion for 2021 as 

shown in the following steps.

1. Multiply the total amount distributed by a fraction. The 

numerator (top part) is the basis (contributions not 

previously distributed) at the end of 2020, plus total 

contributions for 2021, and the denominator (bottom 

part) is the value (balance) of the account at the end 

of 2021 plus the amount distributed during 2021.

2. Subtract the amount figured in (1) from the total 

amount distributed during 2021. The result is the 

amount of earnings included in the distribution(s).

3. Multiply the amount of earnings figured in (2) by a 

fraction. The numerator (top part) is the adjusted 

qualified education expenses paid during 2021, and 

the denominator (bottom part) is the total amount distributed during 2021.

4. Subtract the amount figured in (3) from the amount 

figured in (2). The result is the amount the beneficiary 

must include in income.

The taxable amount must be reported on Schedule 1 

(Form 1040), line 8z.

Example. You received an $850 distribution from your 

Coverdell ESA, to which $1,500 had been contributed before 2021. There were no contributions in 2021. This is 

your first distribution from the account, so your basis in the 

account on December 31, 2020, was $1,500. The value 

(balance) of your account on December 31, 2021, was 

$950. You had $700 of AQEE for the year. Using the steps 

Page 46 Chapter 6 Coverdell Education Savings Account (ESA)
in Figuring the Taxable Portion of a Distribution, earlier, 

figure the taxable portion of your distribution as follows.

1. $850 (distribution) ×

$1,500 basis + $0 contributions

$950 value + $850 distribution

= $708 (basis portion of distribution)

2. $850 (distribution) − $708 (basis portion of distribution)

= $142 (earnings included in distribution)

3. $142 

(earnings) ×

  $700 AQEE  

$850 distribution

= $117 (tax-free earnings)

4. $142 (earnings) − $117 (tax-free earnings)

= $25 (taxable earnings)

You must include $25 in income as distributed earnings 

not used for qualified education expenses. Report this 

amount on Schedule 1 (Form 1040), line 8z, listing the 

type and amount of income.

Worksheet 6-3, at the end of this chapter, can help you 

figure your adjusted qualified education expenses, how 

much of your distribution must be included in income, and 

the remaining basis in your Coverdell ESA(s).

Coordination With American Opportunity 

and Lifetime Learning Credits

The American opportunity or lifetime learning credit can 

be claimed in the same year the beneficiary takes a 

tax-free distribution from a Coverdell ESA, as long as the 

same expenses aren't used for both benefits. This means 

the beneficiary must reduce qualified higher education expenses by tax-free educational assistance, and then further reduce them by any expenses taken into account in 

determining an American opportunity or lifetime learning 

credit.

Example. Derek Green had $5,800 of qualified higher 

education expenses for 2021, his first year in college. He 

paid his college expenses from the following sources.

Partial tuition scholarship (tax free) ......... $1,500

Coverdell ESA distribution ............... 1,000

Gift from parents ...................... 2,100

Earnings from part-time job ............... 1,200

Of his $5,800 of qualified higher education expenses, 

$4,000 was tuition and related expenses that also qualified for an American opportunity credit. Derek's parents 

claimed a $2,500 American opportunity credit (based on 

$4,000 expenses) on their tax return.

Before Derek can determine the taxable portion of his 

Coverdell ESA distribution, he must reduce his total qualified higher education expenses.

Total qualified higher education expenses .... $5,800

Minus: Tax-free educational assistance ...... − 1,500

Minus: Expenses taken into account in 

figuring American opportunity credit ....... − 4,000

Equals: Adjusted qualified higher education 

expenses (AQHEE) ................... $ 300

Since the AQHEE ($300) are less than the Coverdell ESA 

distribution ($1,000), part of the distribution will be taxable. The balance in Derek's account was $1,800 on December 31, 2021. Prior to 2021, $2,100 had been contributed to this account. Contributions for 2021 totaled $400. 

Using the four steps outlined earlier, Derek figures the taxable portion of his distribution as shown below.

1. $1,000 

(distribution) ×

$2,100 basis + $400 contributions

$1,800 value + $1,000 distribution

= $893 (basis portion of distribution)

2. $1,000 (distribution) − $893 (basis portion of distribution)

= $107 (earnings included in distribution)

3. $107 (earnings) ×

   $300 AQHEE   

$1,000 distribution

= $32 (tax-free earnings)

4. $107 (earnings) − $32 (tax-free earnings)

= $75 (taxable earnings)

Derek must include $75 in income (Schedule 1 (Form 

1040), line 8z). This is the amount of distributed earnings 

not used for AQHEE.

Coordination With Qualified Tuition

Program (QTP) Distributions

If a designated beneficiary receives distributions from 

both a Coverdell ESA and a QTP in the same year, and 

the total distribution is more than the beneficiary's AQEE, 

those expenses must be allocated between the distribution from the Coverdell ESA and the distribution from the 

QTP before figuring how much of each distribution is taxable. The following two examples illustrate possible allocations.

Example 1. In 2021, Beatrice graduated from high 

school and began her first semester of college. That year, 

she had $1,000 of qualified elementary and secondary 

education expenses (QESEE) for high school and $3,000 

of qualified higher education expenses (QHEE) for college. Her QESEE doesn't include tuition. To pay these expenses, Beatrice withdrew $800 from her Coverdell ESA 

and $4,200 from her QTP. No one claimed Beatrice as a 

dependent, nor was she eligible for an education credit. 

She didn't receive any tax-free educational assistance in 

2021. Beatrice must allocate her total qualified education 

expenses between the two distributions.

1. Beatrice knows that tax-free treatment will be available if she applies her $800 Coverdell ESA distribution 

Chapter 6 Coverdell Education Savings Account (ESA) Page 47
toward her $1,000 of qualified education expenses for 

high school. The qualified expenses are greater than 

the distribution, making the $800 Coverdell ESA distribution tax free.

2. Next, Beatrice matches her $4,200 QTP distribution 

to her $3,000 of QHEE, and finds she has an excess 

QTP distribution of $1,200 ($4,200 QTP − $3,000 

QHEE). She can't use the extra $200 of high school 

expenses (from (1) above) against the QTP distribution because those expenses are not high school tuition expenses and don't qualify a QTP for tax-free 

treatment.

3. Finally, Beatrice figures the taxable and tax-free portions of her QTP distribution based on her $3,000 of 

QHEE. (See Figuring the Taxable Portion of a Distribution in chapter 7 for more information.)

Example 2. Assume the same facts as in Example 1, 

except that Beatrice withdrew $1,800 from her Coverdell 

ESA and $3,200 from her QTP. In this case, she allocates 

her qualified education expenses as follows.

1. Using the same reasoning as in Example 1, Beatrice 

matches $1,000 of her Coverdell ESA distribution to 

her $1,000 of QESEE—she has $800 of her distribution remaining.

2. Because higher education expenses can also qualify 

a Coverdell ESA distribution for tax-free treatment, 

Beatrice allocates her $3,000 of QHEE between the 

remaining $800 Coverdell ESA and the $3,200 QTP 

distributions ($4,000 total).

$3,000 

QHEE ×

$800 ESA distribution

$4,000 total distribution =

$600

QHEE (ESA)

$3,000 

QHEE ×

$3,200 QTP distribution

$4,000 total distribution =

$2,400

QHEE 

(QTP)

3. Beatrice then figures the taxable part of the following.

a. Coverdell ESA distribution based on qualified education expenses of $1,600 ($1,000 QESEE + 

$600 QHEE). See Figuring the Taxable Portion of 

a Distribution, earlier, in this chapter.

b. QTP distribution based on her $2,400 of QHEE 

(see Figuring the Taxable Portion of a Distribution 

in chapter 7).

The above examples show two types of allocation 

between distributions from a Coverdell ESA and a 

QTP. However, you don't have to allocate your 

expenses in the same way. You can use any reasonable 

method.

Losses on Coverdell ESA Investments

For tax years beginning after 2017 and before 2026, if you 

have a loss on your investment in a Coverdell ESA, you 

can’t deduct the loss on your income tax return. You have 

a loss only when all amounts from that account have been 

TIP

distributed and the total distributions are less than your 

unrecovered basis. Your basis is the total amount of contributions to that Coverdell ESA.

Additional Tax on Taxable Distributions

Generally, if you receive a taxable distribution, you must 

also pay a 10% additional tax on the amount included in 

income.

Exceptions. The 10% additional tax doesn't apply to the 

following distributions.

1. Paid to a beneficiary (or to the estate of the designated beneficiary) on or after the death of the designated beneficiary.

2. Made because the designated beneficiary is disabled. 

A person is considered to be disabled if he or she 

shows proof that he or she can't do any substantial 

gainful activity because of his or her physical or mental condition. A physician must determine that his or 

her condition can be expected to result in death or to 

be of long-continued and indefinite duration.

3. Included in income because the designated beneficiary received:

a. A tax-free scholarship or fellowship grant (see 

Tax-Free Scholarships and Fellowship Grants in 

chapter 1);

b. Veterans' educational assistance (see Veterans' 

Benefits in chapter 1);

c. Employer-provided educational assistance (see 

chapter 10); or

d. Any other nontaxable (tax-free) payments (other 

than gifts or inheritances) received as educational 

assistance.

This exception applies only to the extent the distribution isn't more than the scholarship, allowance, or 

payment.

4. Made on account of the attendance of the designated 

beneficiary at a U.S. military academy (such as the 

USMA at West Point). This exception applies only to 

the extent that the amount of the distribution doesn't 

exceed the costs of advanced education (as defined 

in section 2005(d)(3) of title 10 of the U.S. Code) attributable to such attendance.

5. Included in income only because the qualified education expenses were taken into account in determining 

the American opportunity or lifetime learning credit 

(see Coordination With American Opportunity and 

Lifetime Learning Credits, earlier).

6. Made before June 1, 2022, of an excess 2021 contribution (and any earnings on it). The distributed earnings must be included in gross income for the year in 

which the excess contribution was made.

Page 48 Chapter 6 Coverdell Education Savings Account (ESA)
Figuring the additional tax. Use Part II of Form 5329 to 

figure any additional tax. Report the amount on Schedule 

2 (Form 1040), line 8. 

When Assets Must Be Distributed

Any assets remaining in a Coverdell ESA must be distributed when either one of the following two events occurs.

1. The designated beneficiary reaches age 30. In this 

case, the remaining assets must be distributed within 

30 days after the beneficiary reaches age 30. However, this rule doesn't apply if the beneficiary is a special needs beneficiary.

2. The designated beneficiary dies. In this case, the remaining assets must generally be distributed within 

30 days after the date of death.

Exception for Transfer to

Surviving Spouse or Family Member

If a Coverdell ESA is transferred to a surviving spouse or 

other family member as the result of the death of the designated beneficiary, the Coverdell ESA retains its status. 

(“Family member” was defined earlier under Rollovers.) 

This means the spouse or other family member can treat 

the Coverdell ESA as his or her own and doesn't need to 

withdraw the assets until he or she reaches age 30. This 

age limitation doesn't apply if the new beneficiary is a special needs beneficiary. There are no tax consequences as 

a result of the transfer.

How To Figure the Taxable Earnings

When a total distribution is made because the designated 

beneficiary either reached age 30 or died, the earnings 

that accumulated tax free in the account must be included 

in taxable income. You determine these earnings as 

shown in the following two steps.

1. Multiply the amount distributed by a fraction. The numerator (top part) is the basis (contributions not previously distributed) at the end of 2020 plus total contributions for 2021, and the denominator (bottom part) is 

the balance in the account at the end of 2021 plus the 

amount distributed during 2021.

2. Subtract the amount figured in (1) from the total 

amount distributed during 2021. The result is the 

amount of earnings included in the distribution.

For an example, see steps 1 and 2 of the Example under Figuring the Taxable Portion of a Distribution, earlier.

The beneficiary or other person receiving the distribution must report this amount on Schedule 1 (Form 1040), 

line 8z, listing the type and amount of income.

Coverdell ESA—Taxable Distributions and Basis

Line G. Enter the total distributions received from all Coverdell ESAs during 2021. Don't include amounts rolled over to another ESA 

within 60 days (only one rollover is allowed during any 12-month period). Also, don't include excess contributions that were 

distributed with the related earnings (or less any loss) before the first day of the sixth month of the tax year following the year for 

which the contributions were made.

Line 2. Your basis (amount already taxed) in this Coverdell ESA as of December 31, 2020, is the total of:

• All contributions to this Coverdell ESA before 2021, minus

• The tax-free portion of any distributions from this Coverdell ESA before 2021.

If your last distribution from this Coverdell ESA was before 2021, you must start with the basis in your account as of the end of 

the last year in which you took a distribution. For years before 2002, you can find that amount on the last line of the worksheet in 

the Instructions for Form 8606, Nondeductible IRAs, that you completed for that year. For years after 2001, you can find that 

amount by using the ending basis from the worksheet in Pub. 970 for that year. You can determine your basis in this Coverdell 

ESA as of December 31, 2020, by adding to the basis as of the end of that year any contributions made to that account after the 

year of the distribution and before 2021.

Line 4. Enter the total distributions received from this Coverdell ESA in 2021. Don't include amounts rolled over to another Coverdell 

ESA within 60 days (only one rollover is allowed during any 12-month period).

Also, don't include excess contributions that were distributed with the related earnings (or less any loss) before the first day of 

the sixth month of the tax year following the year of the contributions.

Line 7. Enter the total value of this Coverdell ESA as of December 31, 2021, plus any outstanding rollovers contributed to the account 

after 2020, but before the end of the 60-day rollover period. A statement should be sent to you by January 31, 2022, for this 

Coverdell ESA showing the value on December 31, 2021.

A rollover is a tax-free withdrawal from one Coverdell ESA that is contributed to another Coverdell ESA. An outstanding 

rollover is any amount withdrawn within 60 days before the end of 2021 (November 2 through December 31) that was rolled 

over after December 31, 2021, but within the 60-day rollover period.

Worksheet 6-3 Instructions.

Chapter 6 Coverdell Education Savings Account (ESA) Page 49
Coverdell ESA—Taxable Distributions and 

Basis

Worksheet 6-3.

Keep for Your Records

How to complete this worksheet.

•

•

•

Complete Part I, lines A through H, on only one worksheet.

Complete a separate Part II, lines 1 through 15, for each of your Coverdell ESAs.

Complete Part III, the Summary (line 16), on only one worksheet.

Caution. If you had a distribution from a qualified tuition program (QTP), see Coordination With Qualified Tuition Program (QTP) 

Distributions.

Part I. Qualified Education Expenses (Complete for total expenses.)

 A. Enter your total qualified education expenses for 2021 .....................................  A.

 B. Enter those qualified education expenses paid for with tax-free 

educational assistance (for example, tax-free scholarships, veterans' 

educational benefits, Pell grants, employer-provided educational 

assistance) ..............................................  B.

 C. Enter those qualified higher education expenses deducted on 

Schedule C (Form 1040), Schedule F (Form 1040), or Schedule 1 

(Form 1040), line 12 ........................................ C.

 D. Enter those qualified higher education expenses on which 

an American opportunity or lifetime learning credit was based .......  D.

 E. Add lines B, C, and D ...............................................................  E.

 F. Subtract line E from line A. This is your adjusted qualified education expense for 2021 ............  F.

 G. Enter your total distributions from all Coverdell ESAs during 2021. Don't include rollovers 

or the return of excess contributions. See instructions ...................................... G.

 H. Divide line F by line G. Enter the result as a decimal (rounded to at least 3 places). If the 

result is 1.000 or more, enter 1.000 ....................................................  H. .

Part II. Taxable Distributions and Basis (Complete separately for each account.) 

 1. Enter the amount contributed to this Coverdell ESA for 2021, including contributions made for 2021 

from January 1, 2022, through the due date (not including extensions) for filing your 2021 return. Don't

include rollovers or the return of excess contributions .....................................  1.

 2. Enter your basis in this Coverdell ESA as of December 31, 2020. See instructions ...............  2.

 3. Add lines 1 and 2 ..................................................................  3.

 4. Enter the total distributions from this Coverdell ESA during 2021. Don't include rollovers 

or the return of excess contributions. See instructions ......................................  4.

 5. Multiply line 4 by line H. This is the amount of adjusted qualified 

education expense attributable to this Coverdell ESA ..............  5.

 6. Subtract line 5 from line 4 ....................................  6.

 7. Enter the total value of this Coverdell ESA as of December 31, 2021, 

plus any outstanding rollovers. See instructions ..................  7.

 8. Add lines 4 and 7 ..........................................  8.

 9. Divide line 3 by line 8. Enter the result as a decimal (rounded to 

at least 3 places). If the result is 1.000 or more, enter 1.000 .........  9. .

10. Multiply line 4 by line 9. This is the amount of basis allocated to your 

distributions, and is tax free ......................................................... 10.

Note. If line 6 is zero, skip lines 11 through 13, enter -0- on line 14, and go to line 15.

11. Subtract line 10 from line 4 .......................................................... 11.

12. Divide line 5 by line 4. Enter the result as a decimal (rounded to 

at least 3 places). If the result is 1.000 or more, enter 1.000 ......... 12. .

13. Multiply line 11 by line 12. This is the amount of qualified education 

expenses allocated to your distributions, and is tax free .................................... 13.

14. Subtract line 13 from line 11. This is the portion of the distributions from this 

Coverdell ESA in 2021 that you must include in income ................................ 14.

15. Subtract line 10 from line 3. This is your basis in this Coverdell ESA as of December 

31, 2021 ........................................................................ 15.

Part III. Summary (Complete only once.) 

16. Taxable amount. Add together all amounts on line 14 for all your Coverdell ESAs. Enter here 

and include on Schedule 1 (Form 1040), line 8z, listing the type and amount of income ......... 16.

Page 50 Chapter 6 Coverdell Education Savings Account (ESA)
7.

Qualified Tuition Program 

(QTP)

Introduction

Qualified tuition programs (QTPs) are also called “529 

plans.”

States may establish and maintain programs that allow 

you to either prepay or contribute to an account for paying 

a student's qualified education expenses at an eligible educational institution. Eligible educational institutions may 

establish and maintain programs that allow you to prepay 

a student's qualified education expenses. If you prepay 

tuition, the student (designated beneficiary) will be entitled 

to a waiver or a payment of qualified education expenses. 

You can't deduct either payments or contributions to a 

QTP. For information on a specific QTP, you will need to 

contact the state agency or eligible educational institution 

that established and maintains it.

What is the tax benefit of a QTP? No tax is due on a 

distribution from a QTP unless the amount distributed is 

greater than the beneficiary's adjusted qualified education 

expenses. See Are Distributions Taxable, later, for more 

information.

Even if a QTP is used to finance a student's education, the student or the student's parents still 

may be eligible to claim the American opportunity 

credit or the lifetime learning credit. See Coordination 

With American Opportunity and Lifetime Learning Credits, 

later.

What Is a QTP?

A QTP is a program set up to allow you to either prepay or 

contribute to an account established for paying a student's 

qualified education expenses at an eligible educational institution. QTPs can be established and maintained by 

states (or agencies or instrumentalities of a state) and eligible educational institutions. The program must meet certain requirements. Your state government or the eligible 

educational institution in which you are interested can tell 

you whether or not they participate in a QTP.

Qualified Education Expenses

Generally, these are expenses required for the enrollment 

or attendance of the designated beneficiary at an eligible 

educational institution. For purposes of QTPs, the expenses can be either qualified higher education expenses or 

qualified elementary and secondary education expenses.

TIP

Designated beneficiary. The designated beneficiary is 

generally the student (or future student) for whom the QTP 

is intended to provide benefits. The designated beneficiary can be changed after participation in the QTP begins. If a state or local government or certain tax-exempt 

organizations purchase an interest in a QTP as part of a 

scholarship program, the designated beneficiary is the 

person who receives the interest as a scholarship.

Eligible Educational Institution

For purposes of a QTP, an eligible educational institution 

can be either an eligible postsecondary school or an eligible elementary or secondary school.

Eligible postsecondary school. An eligible postsecondary school is generally any accredited public, nonprofit, 

or proprietary (privately owned profit-making) college, university, vocational school, or other postsecondary educational institution. Also, the institution must be eligible to 

participate in a student aid program administered by the 

U.S. Department of Education. Virtually all accredited 

postsecondary institutions meet this definition. The educational institution should be able to tell you if it’s an eligible educational institution.

An eligible educational institution also includes certain 

educational institutions located outside the United States 

that are eligible to participate in a student aid program administered by the U.S. Department of Education.

Eligible elementary or secondary school. An eligible 

elementary or secondary school is any public, private, or 

religious school that provides elementary or secondary 

education (kindergarten through grade 12), as determined 

under state law.

Qualified Higher Education Expenses

These are expenses related to enrollment or attendance 

at an eligible postsecondary school. As shown in the following list, to be qualified, some of the expenses must be 

required by the school and some must be incurred by students who are enrolled at least half-time, defined later.

1. The following expenses must be required for enrollment or attendance of a designated beneficiary at an 

eligible postsecondary school.

a. Tuition and fees.

b. Books, supplies, and equipment.

2. Expenses for special needs services needed by a 

special needs beneficiary must be incurred in connection with enrollment or attendance at an eligible postsecondary school.

3. Expenses for room and board must be incurred by 

students who are enrolled at least half-time (defined 

later).

The expense for room and board qualifies only to 

the extent that it isn't more than the greater of the following two amounts.

Chapter 7 Qualified Tuition Program (QTP) Page 51
a. The allowance for room and board, as determined 

by the school, that was included in the cost of attendance (for federal financial aid purposes) for a 

particular academic period and living arrangement 

of the student.

b. The actual amount charged if the student is residing in housing owned or operated by the school.

You may need to contact the eligible educational 

institution for qualified room and board costs.

4. The purchase of computer or peripheral equipment, 

computer software, or Internet access and related 

services, if it's to be used primarily by the beneficiary 

during any of the years the beneficiary is enrolled at 

an eligible postsecondary school. (This doesn't include expenses for computer software for sports, 

games, or hobbies unless the software is predominantly educational in nature.)

5. The expenses for fees, books, supplies, and equipment required for the designated beneficiary’s participation in an apprenticeship program registered and 

certified with the Secretary of Labor under section 1 of 

the National Apprenticeship Act.

6. No more than $10,000 paid as principal or interest on 

qualified student loans of the designated beneficiary 

or the designated beneficiary’s sibling. A sibling includes a brother, sister, stepbrother, or stepsister. For 

purposes of the $10,000 limitation, amounts treated 

as a qualified higher education expense for the loans 

of a sibling are taken into account for the sibling and 

not for the designated beneficiary. You can’t deduct 

as interest on a student loan (see chapter 4) any 

amount paid from a distribution of earnings from a 

QTP after 2018 to the extent the earnings are treated 

as tax free because they were used to pay student 

loan interest.

Half-time student. A student is enrolled “at least 

half-time” if he or she is enrolled for at least half the 

full-time academic workload for the course of study the 

student is pursuing, as determined under the standards of 

the school where the student is enrolled.

Qualified Elementary and Secondary 

Education Expenses

These are expenses for no more than $10,000 of tuition, 

incurred by a designated beneficiary, in connection with 

enrollment or attendance at an eligible elementary or secondary school.

How Much Can You 

Contribute?

Contributions to a QTP on behalf of any beneficiary can't 

be more than the amount necessary to provide for the 

qualified education expenses of the beneficiary. There are 

no income restrictions on the individual contributors.

You can contribute to both a QTP and a Coverdell education savings account (ESA) in the same year for the 

same designated beneficiary.

Recontribution of Refunded 

Amounts

If a student receives a refund of qualified education expenses that were treated as paid by a QTP distribution, 

the student can recontribute these amounts into any QTP 

for which they are the beneficiary within 60 days after the 

date of the refund to avoid the need to figure the taxable 

part of the QTP distribution.

Are Distributions Taxable?

The part of a distribution representing the amount paid or 

contributed to a QTP doesn't have to be included in income. This is a return of the investment in the plan.

The designated beneficiary generally doesn't have to 

include in income any earnings distributed from a QTP if 

the total distribution is less than or equal to adjusted qualified education expenses (defined under Figuring the Taxable Portion of a Distribution, later).

Earnings and return of investment. You will receive a 

Form 1099-Q from each of the programs from which you 

received a QTP distribution in 2021. The amount of your 

gross distribution (box 1) shown on each form will be divided between your earnings (box 2) and your basis, or return of investment (box 3). Form 1099-Q should be sent to 

you by January 31, 2022.

Figuring the Taxable

Portion of a Distribution

To determine if total distributions for the year are more or 

less than the amount of qualified education expenses, you 

must compare the total of all QTP distributions for the tax 

year to the adjusted qualified education expenses.

Adjusted qualified education expenses (AQEE). This 

amount is the total qualified education expenses reduced 

by any tax-free educational assistance. Tax-free educational assistance includes:

• The tax-free part of scholarships and fellowship grants 

(see Tax-Free Scholarships and Fellowship Grants in 

chapter 1);

• Veterans' educational assistance (see Veterans' Benefits in chapter 1);

• The tax-free part of Pell grants (see Pell Grants and 

Other Title IV Need-Based Education Grants in chapter 1);

• Employer-provided educational assistance (see chapter 10); and

Page 52 Chapter 7 Qualified Tuition Program (QTP)
• Any other nontaxable (tax-free) payments (other than 

gifts or inheritances) received as educational assistance.

Taxable earnings. Use the following steps to figure the 

taxable part.

1. Multiply the total distributed earnings shown in box 2 

of Form 1099-Q, by a fraction. The numerator (top 

part) is the adjusted qualified education expenses 

paid during the year and the denominator (bottom 

part) is the total amount distributed during the year.

2. Subtract the amount figured in (1) from the total distributed earnings. The result is the amount the beneficiary must include in income. Report it on Schedule 1 

(Form 1040), line 8z.

Example 1. In 2013, Sara Clarke's parents opened a 

savings account for her with a QTP maintained by their 

state government. Over the years, they contributed 

$18,000 to the account. The total balance in the account 

was $27,000 on the date the distribution was made. In the 

summer of 2021, Sara enrolled in college and had $8,300 

of qualified education expenses for the rest of the year. 

She paid her college expenses from the following sources.

Gift from parents .................... $1,600

Partial tuition scholarship (tax free) ....... 3,100

QTP distribution .................... 5,300

Before Sara can determine the taxable part of her QTP 

distribution, she must reduce her total qualified education 

expenses by any tax-free educational assistance.

Total qualified education expenses ...... $8,300

Minus: Tax-free educational assistance ... – 3,100

Equals: Adjusted qualified 

education expenses (AQEE) ........... $5,200

Since the remaining expenses ($5,200) are less than the 

QTP distribution, part of the earnings will be taxable.

Sara's Form 1099-Q shows that $950 of the QTP distribution is earnings. Sara figures the taxable part of the distributed earnings as follows.

1. $950 (earnings) ×

$5,200 AQEE

$5,300 distribution

= $932 (tax-free earnings)

2. $950 (earnings) − $932 (tax-free earnings)

= $18 (taxable earnings)

Sara must include $18 in income (Schedule 1 (Form 

1040), line 8z) as distributed QTP earnings not used for 

AQEE.

Coordination With American Opportunity 

and Lifetime Learning Credits

An American opportunity or lifetime learning credit (education credit) can be claimed in the same year the beneficiary takes a tax-free distribution from a QTP, as long as 

the same expenses aren't used for both benefits. This 

means that after the beneficiary reduces qualified education expenses by tax-free educational assistance, he or 

she must further reduce them by the expenses taken into 

account in determining the credit.

Example 2. Assume the same facts as in Example 1, 

except that Sara's parents claimed an American opportunity credit of $2,500 (based on $4,000 expenses).

Total qualified education expenses ......... $8,300

Minus: Tax-free educational assistance ...... − 3,100

Minus: Expenses taken into account

 in figuring American opportunity credit ...... − 4,000

Equals: Adjusted qualified 

education expenses (AQEE) .............. $1,200

The taxable part of the distribution is figured as follows.

1. $950 (earnings) ×

$1,200 AQEE  

$5,300 distribution

= $215 (tax-free earnings)

2. $950 (earnings) − $215 (tax-free earnings)

= $735 (taxable earnings)

Sara must include $735 in income (Schedule 1 (Form 

1040), line 8z). This represents distributed earnings not 

used for AQEE.

Coordination With Coverdell

ESA Distributions

If a designated beneficiary receives distributions from 

both a QTP and a Coverdell ESA in the same year, and 

the total of these distributions is more than the beneficiary's AQEE, the expenses must be allocated between 

the distributions.

Example 3. Assume the same facts as in Example 2, 

except that instead of receiving a $5,300 distribution from 

her QTP, Sara received $4,600 from that account and 

$700 from her Coverdell ESA. In this case, Sara must allocate her $1,200 of AQEE between the two distributions.

$1,200 

AQEE ×

$700 ESA distribution

$5,300 total distribution =

$158

AQEE (ESA)

$1,200 

AQEE ×

$4,600 QTP distribution

$5,300 total distribution =

$1,042

AQEE (QTP)

Sara then figures the taxable portion of her Coverdell 

ESA distribution based on qualified education expenses 

of $158, and the taxable portion of her QTP distribution 

based on the other $1,042.

Chapter 7 Qualified Tuition Program (QTP) Page 53
Note. If you are required to allocate your expenses between Coverdell ESA and QTP distributions, and you 

have adjusted qualified elementary and secondary education expenses, see the examples in chapter 6 under Coordination With Qualified Tuition Program (QTP) Distributions.

Losses on QTP Investments

For tax years beginning after 2017 and before 2026, if you 

have a loss on your investment in a QTP account, you 

can’t claim the loss on your income tax return. You have a 

loss only when all amounts from that account have been 

distributed and the total distributions are less than your 

unrecovered basis. Your basis is the total amount of contributions to that QTP account.

The aggregation rules that applied if you had distributions from more than one QTP account during a year were eliminated for distributions after 

2014. For more information, see Notice 2016-13, available 

at IRS.gov/IRB/2016-07_IRB#NOT-2016-13.

Additional Tax on

Taxable Distributions

Generally, if you receive a taxable distribution, you must 

also pay a 10% additional tax on the amount included in 

income.

Exceptions. The 10% additional tax doesn't apply to the 

following distributions.

1. Paid to a beneficiary (or to the estate of the designated beneficiary) on or after the death of the designated beneficiary.

2. Made because the designated beneficiary is disabled. 

A person is considered to be disabled if he or she 

shows proof that he or she can't do any substantial 

gainful activity because of his or her physical or mental condition. A physician must determine that his or 

her condition can be expected to result in death or to 

be of long-continued and indefinite duration.

3. Included in income because the designated beneficiary received:

a. A tax-free scholarship or fellowship grant (see 

Tax-Free Scholarships and Fellowship Grants in 

chapter 1);

b. Veterans' educational assistance (see Veterans' 

Benefits in chapter 1);

c. Employer-provided educational assistance (see 

chapter 10); or

d. Any other nontaxable (tax-free) payments (other 

than gifts or inheritances) received as educational 

assistance.

This exception only applies to the extent the distribution isn't more than the scholarship, allowance, or 

payment.

CAUTION

!

4. Made on account of the attendance of the designated 

beneficiary at a U.S. military academy (such as the 

USNA at Annapolis). This exception applies only to 

the extent that the amount of the distribution doesn't 

exceed the costs of advanced education (as defined 

in section 2005(d)(3) of title 10 of the U.S. Code) attributable to such attendance.

5. Included in income only because the qualified education expenses were taken into account in determining 

the American opportunity or lifetime learning credit 

(see Coordination With American Opportunity and 

Lifetime Learning Credits, earlier).

Figuring the additional tax. Use Part II of Form 5329 to 

figure any additional tax. Report the amount on Schedule 

2 (Form 1040), line 8.

Rollovers and Other Transfers

Assets can be rolled over or transferred from one QTP to 

another or from a QTP to an ABLE account. In addition, 

the designated beneficiary can be changed without transferring accounts.

Rollovers

Any amount distributed from a QTP isn't taxable if it's rolled over to either:

• Another QTP for the benefit of the same beneficiary or 

for the benefit of a member of the beneficiary's family 

(including the beneficiary's spouse), or

• An ABLE account for the benefit of the same beneficiary or for the benefit of a member of the beneficiary’s 

family (including the beneficiary’s spouse). But this 

doesn’t apply to the extent the amount distributed 

when added to other amounts contributed to the ABLE 

account exceeds the annual contribution limit. For 

more information about ABLE accounts, see Pub. 

907, Tax Highlights for Persons With Disabilities.

You should contact the qualified ABLE program 

before contributing any funds to the ABLE account to ensure that the contribution limit will not 

be exceeded.

An amount is rolled over if it's paid to an ABLE account 

or another QTP within 60 days after the date of the distribution.

Don't report qualifying rollovers (those that meet the 

above criteria) anywhere on Form 1040, 1040-SR, or 

1040-NR. These aren't taxable distributions.

Members of the beneficiary's family. For these purposes, the beneficiary's family includes the beneficiary's 

spouse and the following other relatives of the beneficiary.

1. Son, daughter, stepchild, foster child, adopted child, 

or a descendant of any of them.

2. Brother, sister, stepbrother, or stepsister.

CAUTION

!

Page 54 Chapter 7 Qualified Tuition Program (QTP)
3. Father or mother or ancestor of either.

4. Stepfather or stepmother.

5. Son or daughter of a brother or sister.

6. Brother or sister of father or mother.

7. Son-in-law, daughter-in-law, father-in-law, 

mother-in-law, brother-in-law, or sister-in-law.

8. The spouse of any individual listed above.

9. First cousin.

Example. When Aaron graduated from college in January last year, he had $5,000 left in his QTP. He wanted to 

give this money to his younger brother, who was in junior 

high school. In order to avoid paying tax on the distribution 

of the amount remaining in his account, Aaron contributed 

the same amount to his brother's QTP within 60 days of 

the distribution.

If the rollover is to another QTP for the same beneficiary, only one rollover is allowed within 12 

months of a previous transfer to any QTP for that 

designated beneficiary.

Changing the Designated Beneficiary

There are no income tax consequences if the designated 

beneficiary of an account is changed to a member of the 

beneficiary's family. See Members of the beneficiary's 

family, earlier.

Example. Assume the same situation as in the last example. Instead of closing his QTP and paying the distribution into his brother's QTP, Aaron could have instructed 

the trustee of his account to simply change the name of 

the beneficiary on his account to that of his brother.

8.

Education Exception to 

Additional Tax on Early 

IRA Distributions

Introduction

Generally, if you take a distribution from your IRA before 

you reach age 591/2, you must pay a 10% additional tax 

on the early distribution. This applies to any IRA you own, 

whether it is a traditional IRA (including a SEP-IRA), a 

Roth IRA, or a SIMPLE IRA. The additional tax on an early 

distribution from a SIMPLE IRA may be as high as 25%. 

See Pub. 560, Retirement Plans for Small Business, for 

CAUTION

!

information on SEP-IRAs, and Pub. 590-B for information 

about distributions from all other IRAs.

However, you can take distributions from your IRAs for 

qualified higher education expenses without having to pay 

the 10% additional tax. You may owe income tax on at 

least part of the amount distributed, but you may not have 

to pay the 10% additional tax.

Generally, if the taxable part of the distribution is less 

than or equal to the adjusted qualified education expenses (AQEE), none of the distribution is subject to the additional tax. If the taxable part of the distribution is more than 

the AQEE, only the excess is subject to the additional tax.

Who Is Eligible?

You can take a distribution from your IRA before you 

reach age 591/2 and not have to pay the 10% additional 

tax if, for the year of the distribution, you pay qualified education expenses for:

• Yourself;

• Your spouse;

• Your or your spouse's child, foster child, or adopted 

child; or

• Your or your spouse’s grandchild.

Qualified education expenses. For purposes of the 

10% additional tax, these expenses are tuition, fees, 

books, supplies, and equipment required for enrollment or 

attendance at an eligible educational institution. They also 

include expenses for special needs services incurred by 

or for special needs students in connection with their enrollment or attendance.

In addition, if the student is at least a half-time student, 

room and board are qualified education expenses.

The expense for room and board qualifies only to the 

extent that it isn't more than the greater of the following 

two amounts.

1. The allowance for room and board, as determined by 

the eligible educational institution, that was included 

in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student.

2. The actual amount charged if the student is residing 

in housing owned or operated by the eligible educational institution.

You may need to contact the eligible educational institution for qualified room and board costs.

Eligible educational institution. An eligible educational 

institution is generally any accredited public, nonprofit, or 

proprietary (privately owned profit-making) college, university, vocational school, or other postsecondary educational institution. Also, the institution must be eligible to 

participate in a student aid program administered by the 

U.S. Department of Education. Virtually all accredited 

Chapter 8 Education Exception to Additional Tax on Early IRA Distributions Page 55
postsecondary institutions meet this definition. The educational institution should be able to tell you if it is an eligible educational institution.

An eligible educational institution also includes certain 

educational institutions located outside the United States 

that are eligible to participate in a student aid program administered by the U.S. Department of Education.

Half-time student. A student is enrolled “at least 

half-time” if he or she is enrolled for at least half the 

full-time academic workload for the course of study the 

student is pursuing as determined under the standards of 

the school where the student is enrolled.

Figuring the Amount Not 

Subject to the 10% Tax

To determine the amount of your distribution that isn't subject to the 10% additional tax, first figure your AQEE. You 

do this by reducing your total qualified education expenses by any tax-free educational assistance, which includes:

• Expenses used to figure the tax-free portion of distributions from a Coverdell education savings account 

(ESA) (see Distributions in chapter 6);

• The tax-free part of scholarships and fellowship grants 

(see Tax-Free Scholarships and Fellowship Grants in 

chapter 1);

• The tax-free part of Pell grants (see Pell Grants and 

Other Title IV Need-Based Education Grants in chapter 1);

• Veterans' educational assistance (see Veterans' Benefits in chapter 1);

• Employer-provided educational assistance (see chapter 10); and

• Any other nontaxable (tax-free) payments (other than 

gifts or inheritances) received as educational assistance.

Don't reduce the qualified education expenses by 

amounts paid with funds the student receives as:

• Payment for services, such as wages;

• A loan;

• A gift;

• An inheritance given to either the student or the individual making the withdrawal; or

• A withdrawal from personal savings (including savings 

from a qualified tuition program (QTP)).

If your IRA distribution is equal to or less than your 

AQEE, you aren't subject to the 10% additional tax.

Example 1. In 2021, Erin (age 32) took a year off from 

teaching to attend graduate school full-time. She paid 

$5,800 of qualified education expenses from the following 

sources.

Employer-provided educational assistance 

(tax free) .......................... $5,000

Early distribution from IRA

(taxable part is $500) .................. 3,200

Before Erin can determine if she must pay the 10% additional tax on her IRA distribution, she must reduce her 

total qualified education expenses.

Total qualified education expenses ......... $5,800

Minus: Tax-free educational assistance ...... − 5,000

Equals: AQEE $  800

Because Erin's AQEE ($800) is more than the taxable 

part of her IRA distribution ($500), she doesn't have to pay 

the 10% additional tax on any part of this distribution. 

However, she must include the $500 taxable earnings in 

her gross income subject to income tax.

Example 2. Assume the same facts as in Example 1, 

except that Erin deducted some of the contributions to her 

IRA, so the taxable part of her early distribution is $1,000. 

This must be included in her income subject to income 

tax.

The taxable part of Erin's IRA distribution ($1,000) is 

larger than her $800 AQEE. Therefore, she must pay the 

10% additional tax on $200, the taxable part of her distribution ($1,000) that is more than her AQEE ($800). She 

doesn't have to pay the 10% additional tax on the remaining $800 of her taxable distribution.

Reporting Early Distributions

By January 31, 2022, the payer of your IRA distribution 

should send you Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, 

Insurance Contracts, etc. The information on this form will 

help you determine how much of your distribution is taxable for income tax purposes and how much is subject to 

the 10% additional tax.

If you received an early distribution from your IRA, you 

must report the taxable part of the distribution on Form 

1040, 1040-SR, or 1040-NR, line 4b. Then, if you qualify 

for an exception for qualified higher education expenses, 

you must file Form 5329 to show how much, if any, of your 

early distribution is subject to the 10% additional tax. See 

the instructions for Form 5329, Part I, for help in completing the form and entering the results on Schedule 2 (Form 

1040), line 8.

There are many other situations in which Form 5329 is 

required. If, during 2021, you had other distributions from 

IRAs or qualified retirement plans, or have made excess 

contributions to certain tax-favored accounts, see the instructions for Schedule 2 (Form 1040), line 8, to determine 

if you must file Form 5329.

Page 56 Chapter 8 Education Exception to Additional Tax on Early IRA Distributions
9.

Education Savings Bond 

Program

What's New

Modified adjusted gross income (MAGI) limits. For 

2021, the amount of your education savings bond interest 

exclusion is gradually reduced (phased out) if your MAGI 

is between $83,200 and $98,200 ($124,800 and $154,800 

if you file a joint return). You can't exclude any of the interest if your MAGI is $98,200 or more ($154,800 or more if 

you file a joint return).

Introduction

Generally, you must pay tax on the interest earned on 

U.S. savings bonds. If you don't include the interest in income in the years it is earned, you must include it in your 

income in the year in which you cash in the bonds.

However, when you cash in certain savings bonds under an education savings bond program, you may be able 

to exclude the interest from income.

Who Can Cash in Bonds

Tax Free?

You may be able to cash in qualified U.S. savings bonds 

without having to include in your income some or all of the 

interest earned on the bonds if you meet the following 

conditions.

• You pay qualified education expenses for yourself, 

your spouse, or a dependent.

• Your MAGI is less than $98,200 ($154,800 if married 

filing jointly).

• Your filing status isn't married filing separately.

Qualified U.S. savings bonds. A qualified U.S. savings 

bond is a series EE bond issued after 1989 or a series I 

bond. The bond must be issued either in your name (as 

the sole owner) or in the name of both you and your 

spouse (as co-owners).

The owner must be at least 24 years old before the 

bond's issue date. The issue date is printed on the front of 

the savings bond.

The issue date isn't necessarily the date of purchase—it will be the first day of the month in 

which the bond is purchased (or posted, if bought 

electronically).

CAUTION

!

Qualified education expenses. These include the following items you pay for either yourself, your spouse, or a 

dependent.

1. Tuition and fees required to enroll at or attend an eligible educational institution. Qualified education expenses don't include expenses for room and board or for 

courses involving sports, games, or hobbies that 

aren't part of a degree or certificate-granting program. 

2. Contributions to a qualified tuition program (QTP) 

(see How Much Can You Contribute in chapter 7).

3. Contributions to a Coverdell education savings account (ESA) (see Contributions in chapter 6).

Adjusted qualified education expenses. You must 

reduce your qualified education expenses by all of the following tax-free benefits.

1. Tax-free part of scholarships and fellowship grants 

(see Tax-Free Scholarships and Fellowship Grants in 

chapter 1).

2. Expenses used to figure the tax-free portion of distributions from a Coverdell ESA (see Qualified Education Expenses in chapter 6).

3. Expenses used to figure the tax-free portion of distributions from a QTP (see Qualified Education Expenses in chapter 7).

4. Any tax-free payments (other than gifts or inheritances) received as educational assistance, such as:

a. Veterans' educational assistance benefits (see 

Veterans' Benefits in chapter 1);

b. Qualified tuition reductions (see Qualified Tuition 

Reduction in chapter 1); or

c. Employer-provided educational assistance (see 

chapter 10).

5. Any expenses used in figuring the American opportunity and lifetime learning credits. See What Expenses 

Qualify in chapter 2 (American opportunity credit), 

and What Expenses Qualify in chapter 3 (lifetime 

learning credit), for more information.

Eligible educational institution. An eligible educational institution is any college, university, vocational 

school, or other postsecondary educational institution eligible to participate in a student aid program administered 

by the U.S. Department of Education. It includes virtually 

all accredited public, nonprofit, and proprietary (privately 

owned profit-making) postsecondary institutions. The educational institution should be able to tell you if it is an eligible educational institution.

Certain educational institutions located outside the United States also participate in the U.S. Department of Education's Federal Student Aid (FSA) programs.

Dependent. A person who qualifies as your dependent will be listed by name in the Dependents section of 

your Form 1040 or 1040-SR. See the Instructions for Form 

1040.

Chapter 9 Education Savings Bond Program Page 57
Modified adjusted gross income (MAGI). For most 

taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return without taking into 

account this interest exclusion. However, as discussed 

below, there may be other modifications.

Your MAGI is the AGI on line 11 of Form 1040 or 

1040-SR figured without taking into account any savings 

bond interest exclusion and modified by adding back any:

1. Foreign earned income exclusion,

2. Foreign housing exclusion,

3. Foreign housing deduction,

4. Exclusion of income by bona fide residents of American Samoa,

5. Exclusion of income by bona fide residents of Puerto 

Rico,

6. Exclusion for adoption benefits received under an employer's adoption assistance program, and

7. Deduction for student loan interest.

Use the worksheet in the instructions for line 9 of Form 

8815 to figure your MAGI. If you claim any of the exclusion 

or deduction items (1)–(6) listed above, add the amount of 

the exclusion or deduction to the amount on line 5 of the 

worksheet. Don't add in the deduction for (7) student loan 

interest, because line 4 of the worksheet already includes 

this amount. Enter the total on Form 8815, line 9, as your 

MAGI.

Because the deduction for interest expenses attributable to royalties and other investments is 

limited to your net investment income, you can't 

figure the deduction until you have figured this interest exclusion. Therefore, if you had interest expenses attributable to royalties and deductible on Schedule E (Form 

1040), Supplemental Income and Loss, you must make a 

special computation of your deductible interest without regard to this exclusion to figure the net royalty income included in your MAGI. See Royalties included in MAGI under Education Savings Bond Program in chapter 1 of Pub. 

550.

Figuring the Tax-Free Amount

If the total you receive when you cash in the bonds isn't 

more than the adjusted qualified education expenses for 

the year, all of the interest on the bonds may be tax free. 

However, if the total you receive when you cash in the 

bonds is more than the adjusted expenses, only part of 

the interest may be tax free.

To determine the tax-free amount, multiply the interest 

part of the proceeds by a fraction. The numerator (top 

part) of the fraction is the adjusted qualified education expenses (AQEE) you paid during the year. The denominator (bottom part) of the fraction is the total proceeds you 

received during the year.

CAUTION

!

Example. In February 2021, Mark and Joan Washington, a married couple, cashed a qualified series EE U.S. 

savings bond. They received proceeds of $9,000, representing principal of $6,000 and interest of $3,000. In 2021, 

they paid $7,650 of their daughter's college tuition. They 

aren't claiming an American opportunity or lifetime learning credit for those expenses, and their daughter doesn't 

have any tax-free educational assistance. Their MAGI for 

2021 was $80,000.

$3,000

interest ×

$7,650 AQEE

=

$2,550

$9,000 proceeds tax-free interest

They can exclude $2,550 of interest in 2021. They must 

pay tax on the remaining $450 ($3,000 − $2,550) of interest.

Effect of the Amount of Your Income 

on the Amount of Your Exclusion

The amount of your interest exclusion is gradually reduced (phased out) if your MAGI is between $83,200 and 

$98,200 (between $124,800 and $154,800 if your filing 

status is married filing jointly). You can’t exclude any of 

the interest if your MAGI is equal to or more than the upper limit. 

The phaseout, if any, is figured for you when you fill out 

Form 8815.

Claiming the Exclusion

Use Form 8815 to figure your education savings bond interest exclusion. Enter your exclusion on line 3 of Schedule B (Form 1040), Interest and Ordinary Dividends. Attach Form 8815 to your tax return.

10.

Employer-Provided

Educational Assistance

Reminder

Educational assistance benefits. Employer-provided 

educational assistance benefits include payments made 

after March 27, 2020, and before January 1, 2026, for 

Page 58 Chapter 10 Employer-Provided Educational Assistance
principal or interest on any qualified education loan you incurred for your education. See Educational assistance 

benefits.

Introduction

If you receive educational assistance benefits from your 

employer under an educational assistance program, you 

can exclude up to $5,250 of those benefits each year. 

This means your employer shouldn’t include those benefits with your wages, tips, and other compensation shown 

in box 1 of your Form W-2. This also means that you don’t 

have to include the benefits on your income tax return.

You can’t use any of the tax-free education expenses paid for by your employer as the basis for 

any other deduction or credit, including the American opportunity credit and lifetime learning credit.

Educational assistance program. To qualify as an educational assistance program, the plan must be written and 

must meet certain other requirements. Your employer can 

tell you whether there is a qualified program where you 

work.

Educational assistance benefits. Tax-free educational 

assistance benefits include payments for tuition, fees and 

similar expenses, books, supplies, and equipment. Education generally includes any form of instruction or training 

that improves or develops your capabilities. The payments don't have to be for work-related courses or courses that are part of a degree program.

Tax-free educational assistance benefits also include 

payments made after March 27, 2020, and before January 

1, 2026, whether paid to the employee or to a lender, of 

principal or interest on any qualified education loan (defined later) incurred by the employee for education of the 

employee.

Educational assistance benefits don't include payments 

for the following items.

1. Meals, lodging, or transportation.

2. Tools or supplies (other than textbooks) that you can 

keep after completing the course of instruction.

3. Courses involving sports, games, or hobbies unless 

they:

a. Have a reasonable relationship to the business of 

your employer, or

b. Are required as part of a degree program.

Qualified education loan. A qualified education loan is 

generally the same as a qualified student loan. See Qualified Student Loan in chapter 4. However, as discussed 

earlier, the loan must be incurred by the employee for education of the employee.

Benefits over $5,250. If your employer pays more than 

$5,250 in educational assistance benefits for you during 

the year, you must generally pay tax on the amount over 

$5,250. Your employer should include in your wages 

CAUTION

!

(box 1 of Form W-2) the amount that you must include in 

income.

Working condition fringe benefit. However, if the 

benefits over $5,250 also qualify as a working condition 

fringe benefit, your employer doesn't have to include them 

in your wages. A working condition fringe benefit is a benefit that, had you paid for it, would be allowable as a business expense deduction. For more information on working 

condition fringe benefits, see Working Condition Benefits 

in chapter 2 of Pub. 15-B, Employer's Tax Guide to Fringe 

Benefits.

11.

Business Deduction for 

Work-Related Education

What's New

Standard mileage rate. Generally, if you claim a business deduction for work-related education and you drive 

your car to and from school, the amount you can deduct 

for miles driven from January 1, 2021, through December 

31, 2021, is 56 cents a mile. For more information, see 

Transportation Expenses under What Expenses Can Be 

Deducted.

Reminders

Miscellaneous itemized deductions. For tax years beginning after 2017 and before 2026, you no longer deduct 

work-related education expenses as a miscellaneous 

itemized deduction subject to a 2%-of-adjusted-gross-income floor.

Introduction

This chapter discusses work-related education expenses 

you may be able to deduct as business expenses.

To claim such a deduction, you must:

• File Schedule C (Form 1040), Profit or Loss From 

Business, or Schedule F (Form 1040), Profit or Loss 

From Farming, if you are self-employed;

• File Form 2106, Employee Business Expenses, if you 

are an Armed Forces reservist, a qualified performing 

artist, a fee-based state or local government official, or 

an individual with a disability claiming impairment-related education expenses;

• Itemize your deductions on Schedule A (Form 1040) 

or Schedule A (Form 1040-NR), if you are an 

Chapter 11 Business Deduction for Work-Related Education Page 59
individual with a disability claiming impairment-related 

education expenses; and

• Have expenses for education that meet the requirements discussed under Qualifying Work-Related Education, later.

What is the tax benefit of taking a business deduction for work-related education? If you are self-employed, you deduct your expenses for qualifying work-related education directly from your self-employment 

income. This reduces the amount of your income subject 

to both income tax and self-employment tax.

If you are an Armed Forces reservist, qualified performing artist, or a fee-based state or local government official, 

you deduct your expenses for qualifying work-related education directly from your income as you figure your adjusted gross income.

If you are an individual with a disability and can itemize 

your deductions, you deduct your impairment-related education expenses as an itemized deduction. An itemized 

deduction reduces the amount of your income subject to 

tax.

Your work-related education expenses may also qualify 

you for other tax benefits, such as the American opportunity (see chapter 2) and lifetime learning (see chapter 3) 

credits. You may qualify for these other benefits even if 

you don't meet the requirements listed above.

Also, your work-related education expenses may qualify you to claim more than one tax benefit. Generally, you 

may claim any number of benefits as long as you use different expenses to figure each one.

Qualifying Work-Related 

Education

As discussed earlier, self-employed individuals, Armed 

Forces reservists, certain artists, and certain government 

officials can deduct the costs of qualifying work-related 

education as business expenses. Individuals with a disability can deduct impairment expenses related to this education as an itemized deduction. This is education that 

meets at least one of the following two tests.

• The education is required by your employer or the law 

to keep your present salary, status, or job. The required education must serve a bona fide business purpose of your employer.

• The education maintains or improves skills needed in 

your present work.

However, even if the education meets one or both of 

the above tests, it isn't qualifying work-related education if 

it:

• Is needed to meet the minimum educational requirements of your present trade or business, or

• Is part of a program of study that will qualify you for a 

new trade or business.

You can deduct the costs of qualifying work-related education as a business expense even if the education 

could lead to a degree.

Use Figure 11-1 as a quick check to see if your education qualifies.

Education Required by

Employer or by Law

Once you have met the minimum educational requirements for your job, your employer or the law may require 

you to get more education. This additional education is 

qualifying work-related education if all three of the following requirements are met.

• It is required for you to keep your present salary, status, or job.

• The requirement serves a bona fide business purpose 

of your employer.

• The education isn't part of a program that will qualify 

you for a new trade or business.

When you get more education than your employer or 

the law requires, the additional education can be qualifying work-related education only if it maintains or improves 

skills required in your present work. See Education To 

Maintain or Improve Skills, later.

Example. You are a teacher who has satisfied the 

minimum requirements for teaching. Your employer requires you to take an additional college course each year 

to keep your teaching job. If the courses won't qualify you 

for a new trade or business, they are qualifying work-related education even if you eventually receive a master's 

degree and an increase in salary because of this extra education.

Education To Maintain or

Improve Skills

If your education isn't required by your employer or the 

law, it can be qualifying work-related education only if it 

maintains or improves skills needed in your present work. 

This could include refresher courses, courses on current 

developments, and academic or vocational courses.

Example. You repair televisions, radios, and stereo 

systems for XYZ Store. To keep up with the latest 

changes, you take special courses in radio and stereo 

service. These courses maintain and improve skills required in your work.

Maintaining skills vs. qualifying for new job. Education to maintain or improve skills needed in your present 

work isn't qualifying education if it will also qualify you for a 

new trade or business.

Education during temporary absence. If you stop 

working for a year or less in order to get education to 

maintain or improve skills needed in your present work 

Page 60 Chapter 11 Business Deduction for Work-Related Education
and then return to the same general type of work, your absence is considered temporary. Education that you get 

during a temporary absence is qualifying work-related education if it maintains or improves skills needed in your 

present work.

Example. You quit your biology research job to become a full-time biology graduate student for 1 year. If you 

return to work in biology research after completing the 

courses, the education is related to your present work 

even if you don't go back to work with the same employer.

Education during indefinite absence. If you stop 

work for more than a year, your absence from your job is 

considered indefinite. Education during an indefinite absence, even if it maintains or improves skills needed in the 

work from which you are absent, is considered to qualify 

you for a new trade or business. Therefore, it isn't qualifying work-related education.

Education To Meet

Minimum Requirements

Education you need to meet the minimum educational requirements for your present trade or business isn't qualifying work-related education. The minimum educational requirements are determined by:

• Laws and regulations;

• Standards of your profession, trade, or business; and

• Your employer.

Once you have met the minimum educational requirements that were in effect when you were hired, you don't 

have to meet any new minimum educational requirements. This means that if the minimum requirements 

change after you were hired, any education you need to 

meet the new requirements can be qualifying education.

You haven't necessarily met the minimum educational requirements of your trade or business simply because you are already doing the work.

Example 1. You are a full-time engineering student. 

Although you haven't received your degree or certification, 

you work part time as an engineer for a firm that will employ you as a full-time engineer after you finish college. 

CAUTION

!

Figure 11-1. Does Your Work-Related Education Qualify?

Start Here

Yes

Is the education required by your employer or

the law to keep your present salary, status, or

job?

Does the requirement serve a

bona de business requirement

of your employer?

Is the education needed to meet the minimum

educational requirements of your present trade

or business?

Is the education part of a program of study

that will qualify you for a new trade or

business?

Does the education maintain or

improve skills needed in your

present work?

Your education isn’t

qualifying work-related

education.

No

No

No

Yes

Yes

No

Yes Yes

Your education is qualifying

work-related education.

No

Chapter 11 Business Deduction for Work-Related Education Page 61
Although your college engineering courses improve your 

skills in your present job, they are also needed to meet the 

minimum job requirements for a full-time engineer. The 

education isn't qualifying work-related education.

Example 2. You are an accountant and you have met 

the minimum educational requirements of your employer. 

Your employer later changes the minimum educational requirements and requires you to take college courses to 

keep your job. These additional courses can be qualifying 

work-related education because you have already satisfied the minimum requirements that were in effect when 

you were hired.

Requirements for Teachers

States or school districts usually set the minimum educational requirements for teachers. The requirement is the 

college degree or the minimum number of college hours 

usually required of a person hired for that position.

If there are no requirements, you will have met the minimum educational requirements when you become a faculty member. The determination of whether you are a faculty member of an educational institution must be made 

on the basis of the particular practices of the institution. 

You will generally be considered a faculty member when 

one or more of the following occurs.

• You have tenure.

• Your years of service count toward obtaining tenure.

• You have a vote in faculty decisions.

• Your school makes contributions for you to a retirement plan other than social security or a similar program.

Example 1. The law in your state requires beginning 

secondary school teachers to have a bachelor's degree, 

including 10 professional education courses. In addition, 

to keep the job, a teacher must complete a fifth year of 

training within 10 years from the date of hire. If the employing school certifies to the state Department of Education that qualified teachers can't be found, the school can 

hire persons with only 3 years of college. However, to 

keep their jobs, these teachers must get a bachelor's degree and the required professional education courses 

within 3 years.

Under these facts, the bachelor's degree, whether or 

not it includes the 10 professional education courses, is 

considered the minimum educational requirement for 

qualification as a teacher in your state.

If you have all the required education except the fifth 

year, you have met the minimum educational requirements. The fifth year of training is qualifying work-related 

education unless it is part of a program of study that will 

qualify you for a new trade or business.

Example 2. Assume the same facts as in Example 1, 

except that you have a bachelor's degree and only six 

professional education courses. The additional four education courses can be qualifying work-related education. 

Although you don't have all the required courses, you 

have already met the minimum educational requirements.

Example 3. Assume the same facts as in Example 1, 

except that you are hired with only 3 years of college. The 

courses you take that lead to a bachelor's degree (including those in education) aren't qualifying work-related education. They are needed to meet the minimum educational 

requirements for employment as a teacher.

Example 4. You have a bachelor's degree and you 

work as a temporary instructor at a university. At the same 

time, you take graduate courses toward an advanced degree. The rules of the university state that you can become a faculty member only if you get a graduate degree. 

Also, you can keep your job as an instructor only as long 

as you show satisfactory progress toward getting this degree. You haven't met the minimum educational requirements to qualify you as a faculty member. The graduate 

courses aren't qualifying work-related education.

Certification in a new state. Once you have met the 

minimum educational requirements for teachers for your 

state, you are considered to have met the minimum educational requirements in all states. This is true even if you 

must get additional education to be certified in another 

state. Any additional education you need is qualifying 

work-related education. You have already met the minimum requirements for teaching. Teaching in another state 

isn't a new trade or business.

Example. You hold a permanent teaching certificate in 

State A and are employed as a teacher in that state for 

several years. You move to State B and are promptly 

hired as a teacher. You are required, however, to complete certain prescribed courses to get a permanent 

teaching certificate in State B. These additional courses 

are qualifying work-related education because the teaching position in State B involves the same general kind of 

work for which you were qualified in State A. 

Education That Qualifies You for a 

New Trade or Business

Education that is part of a program of study that will qualify 

you for a new trade or business isn't qualifying work-related education. This is true even if you don't plan to enter 

that trade or business.

If you are an employee, a change of duties that involves the same general kind of work isn't a new trade or 

business.

Example 1. You are an accountant. Your employer requires you to get a law degree at your own expense. You 

register at a law school for the regular curriculum that 

leads to a law degree. Even if you don't intend to become 

a lawyer, the education isn't qualifying because the law 

degree will qualify you for a new trade or business.

Example 2. You are a general practitioner of medicine. You take a 2-week course to review developments in 

several specialized fields of medicine. The course doesn't 

Page 62 Chapter 11 Business Deduction for Work-Related Education
qualify you for a new profession. It is qualifying work-related education because it maintains or improves skills required in your present profession.

Example 3. While working in the private practice of 

psychiatry, you enter a program to study and train at an 

accredited psychoanalytic institute. The program will lead 

to qualifying you to practice psychoanalysis. The psychoanalytic training doesn't qualify you for a new profession. It 

is qualifying work-related education because it maintains 

or improves skills required in your present profession.

Bar or CPA Review Course

Review courses to prepare for the bar examination or the 

certified public accountant (CPA) examination aren't qualifying work-related education. They are part of a program 

of study that can qualify you for a new profession.

Teaching and Related Duties

All teaching and related duties are considered the same 

general kind of work. A change in duties in any of the following ways isn't considered a change to a new business.

• Elementary school teacher to secondary school 

teacher.

• Teacher of one subject, such as biology, to teacher of 

another subject, such as art.

• Classroom teacher to guidance counselor.

• Classroom teacher to school administrator.

What Expenses

Can Be Deducted?

If your education meets the requirements described earlier under Qualifying Work-Related Education, you may be 

able to deduct your education expenses as business expenses. If you aren't self-employed, you can deduct business expenses only if you are an Armed Forces reservist, 

qualified performing artist, fee-based state or local government official, or, for impairment-related expenses, an 

individual with a disability.

You can't deduct expenses related to tax-exempt and 

excluded income.

Deductible expenses. The following education expenses can be deducted.

• Tuition, books, supplies, lab fees, and similar items.

• Certain transportation and travel costs.

• Other education expenses, such as costs of research 

and typing when writing a paper as part of an educational program.

Nondeductible expenses. You can't deduct personal or 

capital expenses. For example, you can't deduct the dollar 

value of vacation time or annual leave you take to attend 

classes. This amount is a personal expense.

Unclaimed reimbursement. If you don't claim reimbursement that you are entitled to receive from your employer, you can't deduct the expenses that apply to that 

unclaimed reimbursement.

Example. Your employer agrees to pay your education expenses if you file a voucher showing your expenses. You don't file a voucher and you don't get reimbursed. Because you didn't file a voucher, you can't 

deduct the expenses on your tax return.

Transportation Expenses

If your education qualifies, you can deduct local transportation costs of going directly from work to school. If you 

are regularly employed and go to school on a temporary 

basis, you can also deduct the costs of returning from 

school to home.

Temporary basis. You go to school on a temporary basis if either of the following situations applies to you.

1. Your attendance at school is realistically expected to 

last 1 year or less and does indeed last for 1 year or 

less.

2. Initially, your attendance at school is realistically expected to last 1 year or less, but at a later date your 

attendance is reasonably expected to last more than 

1 year. Your attendance is temporary up to the date 

you determine it will last more than 1 year.

If you are in either situation (1) or (2), your attendance isn't 

temporary if facts and circumstances indicate otherwise.

Attendance not on a temporary basis. You don't go 

to school on a temporary basis if either of the following situations applies to you.

1. Your attendance at school is realistically expected to 

last more than 1 year. It doesn't matter how long you 

actually attend.

2. Initially, your attendance at school is realistically expected to last 1 year or less, but at a later date your 

attendance is reasonably expected to last more than 

1 year. Your attendance isn't temporary after the date 

you determine it will last more than 1 year.

Deductible Transportation Expenses

If you are regularly employed and go directly from home to 

school on a temporary basis, you can deduct the roundtrip 

costs of transportation between your home and school. 

This is true regardless of the location of the school, the 

distance traveled, or whether you attend school on nonwork days.

Transportation expenses include the actual costs of 

bus, subway, cab, or other fares, as well as the costs of 

using your car. Transportation expenses don't include 

Chapter 11 Business Deduction for Work-Related Education Page 63
amounts spent for travel, meals, or lodging while you are 

away from home overnight.

Example 1. You regularly work in a nearby town, and 

go directly from work to home. You also attend school every work night for 3 months to take a course that improves 

your job skills. Since you are attending school on a temporary basis, you can deduct your daily roundtrip transportation expenses in going between home and school. This is 

true regardless of the distance traveled.

Example 2. Assume the same facts as in Example 1, 

except that on certain nights you go directly from work to 

school and then home. You can deduct your transportation expenses from your regular work site to school and 

then home.

Example 3. Assume the same facts as in Example 1, 

except that you attend the school for 9 months on Saturdays, nonwork days. Since you are attending school on a 

temporary basis, you can deduct your roundtrip transportation expenses in going between home and school.

Example 4. Assume the same facts as in Example 1, 

except that you attend classes twice a week for 15 

months. Since your attendance in school isn't considered 

temporary, you can't deduct your transportation expenses 

in going between home and school. If you go directly from 

work to school, you can deduct the one-way transportation expenses of going from work to school. If you go from 

work to home to school and return home, your transportation expenses can't be more than if you had gone directly 

from work to school.

Using your car. If you use your car (whether you own or 

lease it) for transportation to school, you can deduct your 

actual expenses or use the standard mileage rate to figure 

the amount you can deduct. The standard mileage rate for 

miles driven from January 1, 2021, through December 31, 

2021, is 56 cents a mile. Whichever method you use, you 

can also deduct parking fees and tolls. See Pub. 463, 

chapter 4, for information on deducting your actual expenses of using a car.

Travel Expenses

You can deduct expenses for travel, meals (see 50% limit 

on meals, later), and lodging if you travel overnight mainly 

to obtain qualifying work-related education.

Travel expenses for qualifying work-related education 

are treated the same as travel expenses for other employee business purposes. For more information, see 

chapter 1 of Pub. 463.

You can't deduct expenses for personal activities 

such as sightseeing, visiting, or entertaining.

Mainly personal travel. If your travel away from home is 

mainly personal, you can't deduct all of your expenses for 

travel, meals, and lodging. You can deduct only your expenses for lodging and meals (see 50% limit on meals, 

CAUTION

!

later) during the time you attend the qualified educational 

activities.

Whether a trip's purpose is mainly personal or educational depends upon the facts and circumstances. An important factor is the comparison of time spent on personal 

activities with time spent on educational activities. If you 

spend more time on personal activities, the trip is considered mainly educational only if you can show a substantial 

nonpersonal reason for traveling to a particular location.

Example 1. John works in Newark, New Jersey. He 

traveled to Chicago to take a deductible 1-week course at 

the request of his employer. His main reason for going to 

Chicago was to take the course.

While there, he took a sightseeing trip, entertained 

some friends, and took a side trip to Pleasantville for a 

day.

Since the trip was mainly for business, John can deduct his roundtrip airfare to Chicago. He can't deduct his 

transportation expenses of going to Pleasantville. He can 

deduct only the meals (see 50% limit on meals, later) and 

lodging connected with his educational activities.

Example 2. Sue works in Boston. She went to a university in Michigan to take a course for work. The course 

is qualifying work-related education.

She took one course, which is one-fourth of a full 

course load of study. She spent the rest of the time on 

personal activities. Her reasons for taking the course in 

Michigan were all personal.

Sue's trip is mainly personal because three-fourths of 

her time is considered personal time. She can't deduct the 

cost of her roundtrip train ticket to Michigan. She can deduct one-fourth of the meals (see 50% limit on meals, 

later) and lodging costs for the time she attended the university.

Example 3. Dave works in Nashville and recently traveled to California to take a 2-week seminar. The seminar 

is qualifying work-related education.

While there, he spent an extra 8 weeks on personal activities. The facts, including the extra 8-week stay, show 

that his main purpose was to take a vacation.

Dave can't deduct his roundtrip airfare or his meals and 

lodging for the 8 weeks. He can deduct only his expenses 

for meals (see 50% limit on meals, later) and lodging for 

the 2 weeks he attended the seminar.

Cruises and conventions. Certain cruises and conventions offer seminars or courses as part of their itinerary. 

Even if the seminars or courses are work related, your deduction for travel may be limited. This applies to:

• Travel by ocean liner, cruise ship, or other form of 

luxury water transportation; and

• Conventions outside the North American area.

For a discussion of the limits on travel expense deductions that apply to cruises and conventions, see Luxury 

Water Travel and Conventions in chapter 1 of Pub. 463.

50% limit on meals. Generally, you can deduct only 

50% of the cost of your meals while traveling away from 

Page 64 Chapter 11 Business Deduction for Work-Related Education
home to obtain qualifying work-related education. However, you can deduct 100% of meals provided by a restaurant. This applies only to meals paid or incurred after 

December 31, 2020, and before January 1, 2023. If you 

were reimbursed for the meals, see How To Treat Reimbursements, later.

Qualified performing artists and fee-based state or local 

government officials must use Form 2106 to apply any 

limit. 

Travel as Education

You can't deduct the cost of travel as a form of education 

even if it is directly related to your duties in your work or 

business.

Example. You are a French language teacher. While 

on sabbatical leave granted for travel, you traveled 

through France to improve your knowledge of the French 

language. You chose your itinerary and most of your activities to improve your French language skills. You can't deduct your travel expenses as education expenses. This is 

true even if you spent most of your time learning French 

by visiting French schools and families, attending movies 

or plays, and engaging in similar activities.

No Double Benefit Allowed

You can't do the following.

• Deduct work-related education expenses as business 

expenses if you benefit from these expenses under 

any other provision of the law.

• Deduct work-related education expenses paid with 

tax-free scholarship, grant, or employer-provided

educational assistance.

Adjustments to Qualifying Work-Related 

Education Expenses

If you pay qualifying work-related education expenses 

with certain tax-free funds, you can't claim a deduction for 

those amounts. You must reduce the qualifying expenses 

by the amount of such expenses allocable to the tax-free 

educational assistance.

Tax-free educational assistance. This includes:

• The tax-free part of scholarships and fellowship grants 

(see Tax-Free Scholarships and Fellowship Grants in 

chapter 1);

• The tax-free part of Pell grants (see Pell Grants and 

Other Title IV Need-Based Education Grants in chapter 1);

• Employer-provided educational assistance (see chapter 10);

• Veterans' educational assistance (see Veterans' Benefits in chapter 1); and

• Any other nontaxable (tax-free) payments (other than 

gifts or inheritances) received as educational assistance.

Amounts that don't reduce qualifying work-related 

education expenses. Don't reduce the qualifying 

work-related education expenses by amounts paid with 

funds the student receives as:

• Payment for services, such as wages;

• A loan;

• A gift;

• An inheritance; or

• A withdrawal from the student's personal savings.

Also, don't reduce the qualifying work-related education expenses by any scholarship or fellowship grant reported as income on the student's return or any scholarship which, by its terms, can't be applied to qualifying 

work-related education expenses. 

How To Treat Reimbursements

How you treat reimbursements depends on the arrangement you have with your employer.

There are two basic types of reimbursement arrangements—accountable plans and nonaccountable plans. 

You can tell the type of plan you are reimbursed under by 

the way the reimbursement is reported on your Form W-2.

Note. The following rules about reimbursement arrangements also apply to expense allowances received 

from your employer.

Accountable Plans

To be an accountable plan, your employer's reimbursement arrangement must require you to meet all three of 

the following rules.

• Your expenses must have a business connection. 

This means your expenses must be allowed under the 

rules for qualifying work-related education explained 

earlier.

• You must adequately account to your employer for 

your expenses within a reasonable period of time.

• You must return any reimbursement or allowance in 

excess of the expenses accounted for within a reasonable period of time.

If you are reimbursed under an accountable plan, your 

employer shouldn't include any reimbursement of income 

on your Form W-2, box 1.

If your employer included reimbursements on 

your Form W-2, box 1, and you meet all three 

rules for accountable plans, ask your employer for 

a corrected Form W-2.

Accountable plan rules not met. Even though you are 

reimbursed under an accountable plan, some of your expenses may not meet all three rules for accountable 

plans. Those expenses that fail to meet the three rules are 

TIP

Chapter 11 Business Deduction for Work-Related Education Page 65
treated as having been reimbursed under a Nonaccountable Plan (discussed later).

Expenses equal reimbursement. Under an accountable plan, if your expenses equal your reimbursement, you 

don't complete Form 2106. Because your expenses and 

reimbursements are equal, you don't have unreimbursed 

work-related education expenses.

Excess expenses. If your expenses are more than your 

reimbursement, you generally cannot deduct your excess 

expenses. See Deducting Business Expenses, later.

Allocating your reimbursements for meals. Because your excess meal expenses may be subject to the 

50% limit, you must figure them separately from your other 

expenses. If your employer paid you a single amount to 

cover both meals and other expenses, you must allocate 

the reimbursement so that you can figure your excess 

meal expenses separately. Make the allocation as follows.

1. Divide your meal expenses by your total expenses.

2. Multiply your total reimbursement by the result from 

(1). This is the allocated reimbursement for your meal 

expenses.

3. Subtract the amount figured in (2) from your total reimbursement. The difference is the allocated reimbursement for your other expenses of qualifying 

work-related education.

Example. You are a qualified performing artist and 

one of your employers paid you an expense allowance of 

$2,000 under an accountable plan. The allowance was to 

cover all of your expenses of traveling away from home to 

take a 2-week training course for work. There was no indication of how much of the reimbursement was for each 

type of expense. Your actual expenses equal $2,500 

($425 for meals + $700 lodging + $150 transportation expenses + $1,225 for books and tuition).

Using the steps listed above, allocate the reimbursement between the $425 meal expenses and the $2,075 

other expenses.

1. $425 meal expenses

$2,500 total = 0.17

expenses

2. $2,000 (reimbursement) × 0.17

= $340 (allocated reimbursement for meal expenses)

3. $2,000 (reimbursement) − $340 (meals) 

= $1,660 (allocated reimbursement for other qualifying 

work-related education expenses)

Your excess meal expenses are $85 ($425 − $340) and 

your excess other expenses are $415 ($2,075 − $1,660). 

For this purpose, assuming the 50% limit applies to all 

your meals, you can deduct your excess work-related education expenses of $458 (($85 × 50%) + $415). See Deducting Business Expenses, later.

Nonaccountable Plans

Your employer will combine the amount of any reimbursement or other expense allowance paid to you under a nonaccountable plan with your wages, salary, or other pay 

and report the total on your Form W-2, box 1.

You generally cannot deduct your expenses regardless 

of whether they are more than, less than, or equal to your 

reimbursement. See Deducting Business Expenses, later.

Reimbursements for nondeductible expenses. Reimbursements you received for nondeductible expenses are 

treated as paid under a nonaccountable plan. You must 

include them in your income. For example, you must include in your income reimbursements your employer gave 

you for expenses of education that:

• You need to meet the minimum educational requirements for your job, or

• Is part of a program of study that can qualify you for a 

new trade or business.

For more information on accountable and nonaccountable plans, see chapter 6 of Pub. 463.

Deducting Business Expenses

Self-employed persons and employees report their business expenses differently.

The following information explains what forms you must 

use to deduct the cost of your qualifying work-related education as a business expense.

Self-Employed Persons

If you are self-employed, you must report the cost of your 

qualifying work-related education on the appropriate form 

used to report your business income and expenses (generally, Schedule C (Form 1040), or Schedule F (Form 

1040)). If your education expenses include expenses for a 

car or truck, travel, or meals, report those expenses the 

same way you report other business expenses for those 

items. See the instructions for the form you file for information on how to complete it.

Armed Forces Reservists, Performing 

Artists, and Fee-Basis Officials

If you are an Armed Forces reservist, a qualified performing artist, or a state (or local) government official who is 

paid in whole or in part on a fee basis, you can deduct the 

cost of your qualifying work-related education as an adjustment to gross income.

Include the cost of your qualifying work-related education with any other employee business expenses on 

Schedule 1 (Form 1040), line 12. You must complete 

Form 2106 to figure your deduction.

For more information on qualified performing artists, 

see chapter 6 of Pub. 463.

Page 66 Chapter 11 Business Deduction for Work-Related Education
Impairment-Related Work Expenses

If you are an individual with a disability and have impairment-related work expenses that are necessary for you to 

be able to get qualifying work-related education, you can 

deduct these expenses on Schedule A (Form 1040), 

line 16, or Schedule A (Form 1040-NR), line 7. To deduct 

these expenses, you must complete Form 2106.

For more information on impairment-related work expenses, see chapter 6 of Pub. 463.

Recordkeeping

You must keep records as proof of any deduction 

claimed on your tax return. Generally, you should 

keep your records for 3 years from the date of filing the tax return and claiming the deduction.

If you are an employee who is reimbursed for expenses 

and you give your records and documentation to your employer, you don't have to keep duplicate copies of this information. However, you should keep your records for a 

3-year period if:

• You claim deductions for expenses that are more than 

your reimbursement,

• Your employer doesn't use adequate accounting procedures to verify expense accounts,

• You are related to your employer, or

• Your expenses are reimbursed under a nonaccountable plan.

Examples of records to keep. If any of the above cases 

apply to you, you must be able to prove that your expenses are deductible. You should keep adequate records or 

have sufficient evidence that will support your expenses. 

Estimates or approximations don't qualify as proof of an 

expense. Some examples of what can be used to help 

prove your expenses are the following.

1. Documents, such as transcripts, course descriptions, 

catalogs, etc., showing periods of enrollment in educational institutions, principal subjects studied, and 

descriptions of educational activity.

2. Canceled checks and receipts to verify amounts you 

spent for:

a. Tuition and books,

b. Meals and lodging while away from home overnight for educational purposes,

c. Travel and transportation, and

d. Other education expenses.

3. Statements from your employer explaining whether 

the education was necessary for you to keep your job, 

salary, or status; how the education helped maintain 

or improve skills needed in your job; how much reimbursement you received; and, if you are a teacher, the 

type of certificate and subjects taught.

RECORDS

4. Complete information about any scholarship or fellowship grants, including amounts you received during 

the year.

12.

How To Get Tax Help

If you have questions about a tax issue; need help preparing your tax return; or want to download free publications, 

forms, or instructions, go to IRS.gov to find resources that 

can help you right away.

Preparing and filing your tax return. After receiving all 

your wage and earnings statements (Forms W-2, W-2G, 

1099-R, 1099-MISC, 1099-NEC, etc.); unemployment 

compensation statements (by mail or in a digital format) or 

other government payment statements (Form 1099-G); 

and interest, dividend, and retirement statements from 

banks and investment firms (Forms 1099), you have several options to choose from to prepare and file your tax return. You can prepare the tax return yourself, see if you 

qualify for free tax preparation, or hire a tax professional to 

prepare your return.

For 2021, if you received an Economic Impact 

Payment (EIP), refer to your Notice 1444-C, Your 

2021 Economic Impact Payment. If you received 

Advance Child Tax Credit payments, refer to your Letter 

6419.

Free options for tax preparation. Go to IRS.gov to see 

your options for preparing and filing your return online or 

in your local community, if you qualify, which include the 

following.

• Free File. This program lets you prepare and file your 

federal individual income tax return for free using 

brand-name tax-preparation-and-filing software or 

Free File fillable forms. However, state tax preparation 

may not be available through Free File. Go to IRS.gov/

FreeFile to see if you qualify for free online federal tax 

preparation, e-filing, and direct deposit or payment options.

• VITA. The Volunteer Income Tax Assistance (VITA) 

program offers free tax help to people with 

low-to-moderate incomes, persons with disabilities, 

and limited-English-speaking taxpayers who need 

help preparing their own tax returns. Go to IRS.gov/

VITA, download the free IRS2Go app, or call 

800-906-9887 for information on free tax return preparation.

• TCE. The Tax Counseling for the Elderly (TCE) program offers free tax help for all taxpayers, particularly 

those who are 60 years of age and older. TCE volunteers specialize in answering questions about 

CAUTION

!

Chapter 12 How To Get Tax Help Page 67
pensions and retirement-related issues unique to seniors. Go to IRS.gov/TCE, download the free IRS2Go 

app, or call 888-227-7669 for information on free tax 

return preparation.

• MilTax. Members of the U.S. Armed Forces and 

qualified veterans may use MilTax, a free tax service 

offered by the Department of Defense through Military 

OneSource. For more information go to 

MilitaryOneSource (MilitaryOneSource.mil/Tax).

Also, the IRS offers Free Fillable Forms, which can 

be completed online and then filed electronically regardless of income.

Using online tools to help prepare your return. Go to 

IRS.gov/Tools for the following.

• The Earned Income Tax Credit Assistant (IRS.gov/

EITCAssistant) determines if you’re eligible for the 

earned income credit (EIC).

• The Online EIN Application (IRS.gov/EIN) helps you 

get an employer identification number (EIN) at no 

cost.

• The Tax Withholding Estimator (IRS.gov/W4app) 

makes it easier for everyone to pay the correct amount 

of tax during the year. The tool is a convenient, online 

way to check and tailor your withholding. It’s more 

user-friendly for taxpayers, including retirees and 

self-employed individuals. The features include the 

following.

– Easy to understand language.

– The ability to switch between screens, correct previous entries, and skip screens that don’t apply.

– Tips and links to help you determine if you qualify 

for tax credits and deductions.

– A progress tracker.

– A self-employment tax feature.

– Automatic calculation of taxable social security benefits.

• The First-Time Homebuyer Credit Account Look-up 

(IRS.gov/HomeBuyer) tool provides information on 

your repayments and account balance.

• The Sales Tax Deduction Calculator (IRS.gov/

SalesTax) figures the amount you can claim if you 

itemize deductions on Schedule A (Form 1040).

Getting answers to your tax questions. On 

IRS.gov, you can get up-to-date information on 

current events and changes in tax law.

• IRS.gov/Help: A variety of tools to help you get answers to some of the most common tax questions.

• IRS.gov/ITA: The Interactive Tax Assistant, a tool that 

will ask you questions and, based on your input, provide answers on a number of tax law topics.

• IRS.gov/Forms: Find forms, instructions, and publications. You will find details on 2021 tax changes and 

hundreds of interactive links to help you find answers 

to your questions.

Need someone to prepare your tax return? There are 

various types of tax return preparers, including tax preparers, enrolled agents, certified public accountants (CPAs), 

attorneys, and many others who don’t have professional 

credentials. If you choose to have someone prepare your 

tax return, choose that preparer wisely. A paid tax preparer is:

• Primarily responsible for the overall substantive accuracy of your return,

• Required to sign the return, and

• Required to include their preparer tax identification 

number (PTIN).

Although the tax preparer always signs the return, you're 

ultimately responsible for providing all the information required for the preparer to accurately prepare your return. 

Anyone paid to prepare tax returns for others should have 

a thorough understanding of tax matters. For more information on how to choose a tax preparer, go to Tips for 

Choosing a Tax Preparer on IRS.gov.

Advance child tax credit payments. From July through 

December 2021, advance payments were sent automatically to taxpayers with qualifying children who met certain 

criteria. The advance child tax credit payments were early 

payments of up to 50% of the estimated child tax credit 

that taxpayers may properly claim on their 2021 returns. 

Go to IRS.gov/AdvCTC for more information about these 

payments and how they can affect your taxes.

Coronavirus. Go to IRS.gov/Coronavirus for links to information on the impact of the coronavirus, as well as tax 

relief available for individuals and families, small and large 

businesses, and tax-exempt organizations.

Employers can register to use Business Services Online. The Social Security Administration (SSA) offers online service at SSA.gov/employer for fast, free, and secure 

online W-2 filing options to CPAs, accountants, enrolled 

agents, and individuals who process Form W-2, Wage 

and Tax Statement, and Form W-2c, Corrected Wage and 

Tax Statement.

IRS social media. Go to IRS.gov/SocialMedia to see the 

various social media tools the IRS uses to share the latest 

information on tax changes, scam alerts, initiatives, products, and services. At the IRS, privacy and security are 

our highest priority. We use these tools to share public information with you. Don’t post your social security number 

(SSN) or other confidential information on social media 

sites. Always protect your identity when using any social 

networking site.

The following IRS YouTube channels provide short, informative videos on various tax-related topics in English, 

Spanish, and ASL.

• Youtube.com/irsvideos.

Page 68 Chapter 12 How To Get Tax Help
• Youtube.com/irsvideosmultilingua.

• Youtube.com/irsvideosASL.

Watching IRS videos. The IRS Video portal 

(IRSVideos.gov) contains video and audio presentations 

for individuals, small businesses, and tax professionals.

Online tax information in other languages. You can 

find information on IRS.gov/MyLanguage if English isn’t 

your native language.

Free Over-the-Phone Interpreter (OPI) Service. The 

IRS is committed to serving our multilingual customers by 

offering OPI services. The OPI service is a federally funded program and is available at Taxpayer Assistance 

Centers (TACs), other IRS offices, and every VITA/TCE 

return site. OPI service is accessible in more than 350 languages.

Accessibility Helpline available for taxpayers with 

disabilities. Taxpayers who need information about accessibility services can call 833-690-0598. The Accessibility Helpline can answer questions related to current and 

future accessibility products and services available in alternative media formats (for example, braille, large print, 

audio, etc.).

Getting tax forms and publications. Go to IRS.gov/

Forms to view, download, or print all of the forms and publications you may need. Or you can go to IRS.gov/

OrderForms to place an order.

Getting tax publications and instructions in eBook 

format. You can also download and view popular tax 

publications and instructions (including the Instructions for 

Form 1040) on mobile devices as eBooks at IRS.gov/

eBooks.

Note. IRS eBooks have been tested using Apple's 

iBooks for iPad. Our eBooks haven’t been tested on other 

dedicated eBook readers, and eBook functionality may 

not operate as intended.

Access your online account (individual taxpayers 

only). Go to IRS.gov/Account to securely access information about your federal tax account.

• View the amount you owe and a breakdown by tax 

year.

• See payment plan details or apply for a new payment 

plan.

• Make a payment or view 5 years of payment history 

and any pending or scheduled payments.

• Access your tax records, including key data from your 

most recent tax return, your EIP amounts, and transcripts.

• View digital copies of select notices from the IRS.

• Approve or reject authorization requests from tax professionals.

• View your address on file or manage your communication preferences.

Tax Pro Account. This tool lets your tax professional 

submit an authorization request to access your individual 

taxpayer IRS online account. For more information, go to 

IRS.gov/TaxProAccount.

Using direct deposit. The fastest way to receive a tax 

refund is to combine direct deposit and IRS e-file. Direct 

deposit securely and electronically transfers your refund 

directly into your financial account. Eight in 10 taxpayers 

use direct deposit to receive their refund. If you don’t have 

a bank account, go to IRS.gov/DirectDeposit for more information on where to find a bank or credit union that can 

open an account online.

Getting a transcript or copy of a return. The quickest 

way to get a copy of your tax transcript is to go to IRS.gov/

Transcripts. Click on either “Get Transcript Online” or “Get 

Transcript by Mail” to order a copy of your transcript. If you 

prefer, you can order your transcript by calling 

800-908-9946.

Reporting and resolving your tax-related identity 

theft issues. 

• Tax-related identity theft happens when someone 

steals your personal information to commit tax fraud. 

Your taxes can be affected if your SSN is used to file a 

fraudulent return or to claim a refund or credit.

• The IRS doesn’t initiate contact with taxpayers by 

email, text messages, telephone calls, or social media 

channels to request personal or financial information. 

This includes requests for personal identification numbers (PINs), passwords, or similar information for 

credit cards, banks, or other financial accounts.

• Go to IRS.gov/IdentityTheft, the IRS Identity Theft 

Central webpage, for information on identity theft and 

data security protection for taxpayers, tax professionals, and businesses. If your SSN has been lost or 

stolen or you suspect you’re a victim of tax-related 

identity theft, you can learn what steps you should 

take.

• Get an Identity Protection PIN (IP PIN). IP PINs are 

six-digit numbers assigned to taxpayers to help prevent the misuse of their SSNs on fraudulent federal income tax returns. When you have an IP PIN, it prevents someone else from filing a tax return with your 

SSN. To learn more, go to IRS.gov/IPPIN.

Ways to check on the status of your refund. 

• Go to IRS.gov/Refunds.

• Download the official IRS2Go app to your mobile device to check your refund status.

• Call the automated refund hotline at 800-829-1954.

Note. The IRS can’t issue refunds before mid-February 2022 for returns that claimed the EIC or the additional 

child tax credit (ACTC). This applies to the entire refund, 

not just the portion associated with these credits.

Chapter 12 How To Get Tax Help Page 69
Making a tax payment. Go to IRS.gov/Payments for information on how to make a payment using any of the following options.

• IRS Direct Pay: Pay your individual tax bill or estimated tax payment directly from your checking or savings account at no cost to you.

• Debit or Credit Card: Choose an approved payment 

processor to pay online or by phone.

• Electronic Funds Withdrawal: Schedule a payment 

when filing your federal taxes using tax return preparation software or through a tax professional.

• Electronic Federal Tax Payment System: Best option 

for businesses. Enrollment is required.

• Check or Money Order: Mail your payment to the address listed on the notice or instructions.

• Cash: You may be able to pay your taxes with cash at 

a participating retail store.

• Same-Day Wire: You may be able to do same-day 

wire from your financial institution. Contact your financial institution for availability, cost, and time frames.

Note. The IRS uses the latest encryption technology to 

ensure that the electronic payments you make online, by 

phone, or from a mobile device using the IRS2Go app are 

safe and secure. Paying electronically is quick, easy, and 

faster than mailing in a check or money order.

What if I can’t pay now? Go to IRS.gov/Payments for 

more information about your options.

• Apply for an online payment agreement (IRS.gov/

OPA) to meet your tax obligation in monthly installments if you can’t pay your taxes in full today. Once 

you complete the online process, you will receive immediate notification of whether your agreement has 

been approved.

• Use the Offer in Compromise Pre-Qualifier to see if 

you can settle your tax debt for less than the full 

amount you owe. For more information on the Offer in 

Compromise program, go to IRS.gov/OIC.

Filing an amended return. You can now file Form 

1040-X electronically with tax filing software to amend 

2019 or 2020 Forms 1040 and 1040-SR. To do so, you 

must have e-filed your original 2019 or 2020 return. Amended returns for all prior years must be mailed. Go to 

IRS.gov/Form1040X for information and updates.

Checking the status of your amended return. Go to 

IRS.gov/WMAR to track the status of Form 1040-X amended returns.

Note. It can take up to 3 weeks from the date you filed 

your amended return for it to show up in our system, and 

processing it can take up to 16 weeks.

Understanding an IRS notice or letter you’ve received. Go to IRS.gov/Notices to find additional information about responding to an IRS notice or letter.

You can use Schedule LEP, Request for Change in 

Language Preference, to state a preference to receive notices, letters, or other written communications from the 

IRS in an alternative language, when these are available. 

Once your Schedule LEP is processed, the IRS will determine your translation needs and provide you translations 

when available. If you have a disability requiring notices in 

an accessible format, see Form 9000.

Contacting your local IRS office. Keep in mind, many 

questions can be answered on IRS.gov without visiting an 

IRS TAC. Go to IRS.gov/LetUsHelp for the topics people 

ask about most. If you still need help, IRS TACs provide 

tax help when a tax issue can’t be handled online or by 

phone. All TACs now provide service by appointment, so 

you’ll know in advance that you can get the service you 

need without long wait times. Before you visit, go to 

IRS.gov/TACLocator to find the nearest TAC and to check 

hours, available services, and appointment options. Or, 

on the IRS2Go app, under the Stay Connected tab, 

choose the Contact Us option and click on “Local Offices.”

The Taxpayer Advocate 

Service (TAS) Is Here To Help 

You

What Is TAS?

TAS is an independent organization within the IRS that 

helps taxpayers and protects taxpayer rights. Their job is 

to ensure that every taxpayer is treated fairly and that you 

know and understand your rights under the Taxpayer Bill 

of Rights.

How Can You Learn About Your Taxpayer 

Rights?

The Taxpayer Bill of Rights describes 10 basic rights that 

all taxpayers have when dealing with the IRS. Go to 

TaxpayerAdvocate.IRS.gov to help you understand what 

these rights mean to you and how they apply. These are 

your rights. Know them. Use them.

What Can TAS Do for You?

TAS can help you resolve problems that you can’t resolve 

with the IRS. And their service is free. If you qualify for 

their assistance, you will be assigned to one advocate 

who will work with you throughout the process and will do 

everything possible to resolve your issue. TAS can help 

you if:

• Your problem is causing financial difficulty for you, 

your family, or your business;

• You face (or your business is facing) an immediate 

threat of adverse action; or

Page 70 Chapter 12 How To Get Tax Help
• You’ve tried repeatedly to contact the IRS but no one 

has responded, or the IRS hasn’t responded by the 

date promised.

How Can You Reach TAS?

TAS has offices in every state, the District of Columbia, 

and Puerto Rico. Your local advocate’s number is in your 

local directory and at TaxpayerAdvocate.IRS.gov/

Contact-Us. You can also call them at 877-777-4778.

How Else Does TAS Help Taxpayers?

TAS works to resolve large-scale problems that affect 

many taxpayers. If you know of one of these broad issues, 

report it to them at IRS.gov/SAMS.

TAS for Tax Professionals

TAS can provide a variety of information for tax professionals, including tax law updates and guidance, TAS programs, and ways to let TAS know about systemic problems you’ve seen in your practice.

Low Income Taxpayer Clinics (LITCs)

LITCs are independent from the IRS. LITCs represent individuals whose income is below a certain level and need 

to resolve tax problems with the IRS, such as audits, appeals, and tax collection disputes. In addition, LITCs can 

provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. Services are offered for free or 

a small fee for eligible taxpayers. To find an LITC near 

you, go to TaxpayerAdvocate.IRS.gov/about-us/LowIncome-Taxpayer-Clinics-LITC or see IRS Pub. 4134, Low 

Income Taxpayer Clinic List.

Chapter 12 How To Get Tax Help Page 71
Appendices

The following appendices are provided 

to help you claim the education benefits that will give you the lowest tax.

1. Appendix A—An illustrated example of education credits, including 

a filled-in Form 8863 showing how 

to claim both the American opportunity credit and the lifetime learning credit for 2021.

2. Appendix B—A chart summarizing some of the major differences 

between the education tax benefits 

discussed in this publication. It is 

intended only as a guide. Look in 

this publication for more complete 

information.

Appendix A. Illustrated 

Example of Education 

Credits

Dave and Valerie Jones are married 

and, on their 2021 joint tax return, they 

claim their two dependent children, 

Sean (age 22, social security number: 

000-00-0001) and Carey (age 18, social security number: 000-00-0002). 

Their modified adjusted gross income 

(MAGI) on Form 1040, line 11, is 

$130,000. Because Dave and Valerie 

have unusually high itemized deductions, their taxable income is $10,000 

and their tax before credits is $1,003.

Sean enrolled as a full-time graduate student in August 2021 at California State College. He graduated with 

his bachelor's degree in 2020 and 

didn't attend school from January 2021 

through July 2021. His parents claimed 

the American opportunity credit for 

Sean for 2017, 2018, 2019, and 2020.

Carey enrolled full time as a freshman at the same college in January 

2021 to begin working on her bachelor's degree.

In 2021, Dave and Valerie paid 

$7,000 in tuition for Sean and $8,000 in 

tuition and $500 for mandatory course 

materials, not purchased from the college, for Carey. Carey received a 

$2,000 scholarship.

California State College issued two 

Forms 1098-T, one for Sean and one 

for Carey, and sent them to the Joneses’ residence. The $2,000 scholarship that Carey received is reported in 

box 5 of her Form 1098-T. In completing Form 8863, the Joneses should include actual adjusted qualified education expenses paid, or deemed to have 

been paid, which may be different from 

what is reported on Form 1098-T. 

Therefore, the Joneses use the 

amounts they paid for tuition and mandatory course materials. Because the 

scholarship Carey received was applied to tuition (a qualified expense), 

they don't include that in the amount 

they paid for qualified tuition expenses. 

Neither Sean nor Carey has been convicted of a felony for possession or distribution of a controlled substance before the end of 2021.

Dave and Valerie figure their education credits by completing Form 8863. 

They begin Form 8863 on page 2 before completing Part I on page 1. Because the Joneses have two eligible 

students, they will complete page 2 

twice, once for their son, Sean, and 

once for their daughter, Carey.

The Joneses decide to complete 

Part III for Carey first, as shown later. 

They carry over the amount of $2,500 

entered on Part III, line 30, to Part I, 

line 1.

The Joneses complete a separate 

Part III for Sean. They check the “Yes” 

box on line 23, determine that Sean 

isn't eligible for the American opportunity credit, and go to line 31 as instructed. They figure their line 31 adjusted 

qualified education expenses for Sean 

to be $7,000.

Once they have completed Part III 

for each student, they figure their credits. The Joneses figure their refundable 

American opportunity credit of $1,000 

by completing Form 8863, Part I, lines 

1 through 8. They enter the amount 

from line 8, $1,000, on line 29 of their 

Form 1040.

The Joneses enter $7,000 on Part II, 

line 10, of Form 8863 and figure their 

tentative lifetime learning credit for 

2021 to be $1,400 (line 12). They can 

claim the full amount because their 

MAGI of $130,000 is less than 

$160,000. They enter $1,400 (figured 

on Part II, line 18) on line 1 of the 

Credit Limit Worksheet. The $1,400 is 

added to their nonrefundable American 

opportunity credit ($1,500 on line 2 of 

the Credit Limit Worksheet) for a total 

nonrefundable credit of $2,900. The 

Joneses enter $1,003 on line 7 of the 

Credit Limit Worksheet, which is the 

smaller of their tax from line 18 of their 

Form 1040 (which is $1,003) or the 

$2,900 on line 3 of the Credit Limit 

Worksheet. They enter $1,003 on 

Form 8863, Part II, line 19, and on 

Schedule 3 (Form 1040), line 3.

Page 72 Publication 970 (2021)
 

Form 1098-T

2021 Tuition 

Statement

Department of the Treasury - Internal Revenue Service

Copy B

For Student

This is important 

tax information 

and is being 

furnished to the 

IRS. This form 

must be used to 

complete Form 8863 

to claim education 

credits. Give it to the 

tax preparer or use it to 

prepare the tax return. 

OMB No. 1545-1574

CORRECTED

FILER’S name, street address, city or town, state or province, country, ZIP or 

foreign postal code, and telephone number

FILER’S employer identication no. STUDENT’S TIN

STUDENT’S name

Street address (including apt. no.)

City or town, state or province, country, and ZIP or foreign postal code

Service Provider/Acct. No. (see instr.)

1 Payments received for 

qualied tuition and related 

expenses

$

2

3 

4 Adjustments made for a 

prior year

$

5 Scholarships or grants

$

6 Adjustments to 

scholarships or grants 

for a prior year

$

7 Checked if the amount 

in box 1 includes 

amounts for an 

academic period 

beginning January– 

March 2022

8 Checked if at least 

half-time student

9 Checked if a graduate 

student 

10 Ins. contract reimb./refund

$

Form 1098-T (keep for your records) www.irs.gov/Form1098T 

California State College

1 Education Way

Modesto, CA 23232

732-111-1111

12-1234545 000-00-0002

Carey Jones

12 South Street

Napa Valley, CA 24556

X

10,000

2,000

Publication 970 (2021) Page 73
Adjusted Qualified Education Expenses Worksheet (Form 8863 Instructions) for Carey 

Jones

Adjusted Qualified Education Expenses Worksheet (Form 8863 Instructions)

1. Total qualified education expenses paid for or on behalf of the student in 2021 for the academic period .......... 10,500

2. Less adjustments:

a. Tax-free educational assistance received in 2021 allocable to the academic period ... 2,000

b. Tax-free educational assistance received in 2022 (and before you file your 2021 tax 

return) allocable to the academic period ................................

-0-

c. Refunds of qualified education expenses paid in 2021 if the refund is received in 2021 

or in 2022 before you file your 2021 tax return ............................

-0-

3. Total adjustments (add lines 2a, 2b, and 2c) ................................................. 2,000

4. Adjusted qualified education expenses. Subtract line 3 from line 1. If zero or less, enter -0- .................. 8,500

Page 74 Publication 970 (2021)
 

Form 1098-T

2021 Tuition 

Statement

Department of the Treasury - Internal Revenue Service

Copy B

For Student

This is important 

tax information 

and is being 

furnished to the 

IRS. This form 

must be used to 

complete Form 8863 

to claim education 

credits. Give it to the 

tax preparer or use it to 

prepare the tax return. 

OMB No. 1545-1574

CORRECTED

FILER’S name, street address, city or town, state or province, country, ZIP or 

foreign postal code, and telephone number

FILER’S employer identication no. STUDENT’S TIN

STUDENT’S name

Street address (including apt. no.)

City or town, state or province, country, and ZIP or foreign postal code

Service Provider/Acct. No. (see instr.)

1 Payments received for 

qualied tuition and related 

expenses

$

2

3 

4 Adjustments made for a 

prior year

$

5 Scholarships or grants

$

6 Adjustments to 

scholarships or grants 

for a prior year

$

7 Checked if the amount 

in box 1 includes 

amounts for an 

academic period 

beginning January– 

March 2022

8 Checked if at least 

half-time student

9 Checked if a graduate 

student 

10 Ins. contract reimb./refund

$

Form 1098-T (keep for your records) www.irs.gov/Form1098T 

California State College

1 Education Way

Modesto, CA 23232

732-111-1111

12-1234545 000-00-0001

Sean Jones

12 South Street

Napa Valley, CA 24556

X

7,000

X

Publication 970 (2021) Page 75
Adjusted Qualified Education Expenses Worksheet (Form 8863 Instructions) for Sean 

Jones

Adjusted Qualified Education Expenses Worksheet (Form 8863 Instructions)

1. Total qualified education expenses paid for or on behalf of the student in 2021 for the academic period .......... 7,000

2. Less adjustments:

a. Tax-free educational assistance received in 2021 allocable to the academic period ...-0-

b. Tax-free educational assistance received in 2022 (and before you file your 2021 tax 

return) allocable to the academic period ................................

-0-

c. Refunds of qualified education expenses paid in 2021 if the refund is received in 2021 

or in 2022 before you file your 2021 tax return ............................

-0-

3. Total adjustments (add lines 2a, 2b, and 2c) ................................................. -0-

4. Adjusted qualified education expenses. Subtract line 3 from line 1. If zero or less, enter -0- .................. 7,000

Credit Limit Worksheet (Form 8863 Instructions)

Complete this worksheet to figure the amount to enter on line 19.

1. Enter the amount from Form 8863, line 18 ................................................... 1. 1,400

2. Enter the amount from Form 8863, line 9 .................................................... 2. 1,500

3. Add lines 1 and 2 ................................................................... 3. 2,900

4. Enter the amount from:

Form 1040 or 1040-SR, line 18 .............................. ............................ 4. 1,003

5. Enter the total of your credits from:

Schedule 3 (Form 1040), lines 1, 2, 4, and 6I ..................... ............................ 5. -0-

6. Subtract line 5 from line 4 .............................................................. 6. 1,003

7. Enter the smaller of line 3 or line 6 here and on Form 8863, line 19 ....... ............................ 7. 1,003

Page 76 Publication 970 (2021)
Form 8863

Department of the Treasury 

Internal Revenue Service 

Education Credits 

(American Opportunity and Lifetime Learning Credits)

 Attach to Form 1040 or 1040-SR.

 Go to www.irs.gov/Form8863 for instructions and the latest information.

OMB No. 1545-0074 

2021

Attachment 

Sequence No. 50 

Name(s) shown on return Your social security number

!

CAUTION

Complete a separate Part III on page 2 for each student for whom you’re claiming either credit before 

you complete Parts I and II.

Part I Refundable American Opportunity Credit 

1 After completing Part III for each student, enter the total of all amounts from all Parts III, line 30 . . 1

2 Enter: $180,000 if married ling jointly; $90,000 if single, head of household, 

or qualifying widow(er) . . ... . . . ... . . .... . 2

3 Enter the amount from Form 1040 or 1040-SR, line 11. If you’re ling Form

2555 or 4563, or you’re excluding income from Puerto Rico, see Pub. 970 for 

the amount to enter . . . . . . . . . ... . . . ... . 3

4 Subtract line 3 from line 2. If zero or less, stop; you can’t take any education

credit . . . . . . . . . . .... .... . . . . . . 4

5 Enter: $20,000 if married ling jointly; $10,000 if single, head of household, or 

qualifying widow(er) . . ... . . . . . . ... . . . . . 5

6 If line 4 is: 

• Equal to or more than line 5, enter 1.000 on line 6 . . . . . . . .... . .

• Less than line 5, divide line 4 by line 5. Enter the result as a decimal (rounded to 

at least three places) . . . . . . . . . ... . . . ..... . . } . . . 6 .

7 Multiply line 1 by line 6. Caution: If you were under age 24 at the end of the year and meet the 

conditions described in the instructions, you can’t take the refundable American opportunity credit; 

skip line 8, enter the amount from line 7 on line 9, and check this box . . . . . . . . 7

8 Refundable American opportunity credit. Multiply line 7 by 40% (0.40). Enter the amount here and 

on Form 1040 or 1040-SR, line 29. Then go to line 9 below. . . . . . . .... . . . . 8

Part II Nonrefundable Education Credits

9 Subtract line 8 from line 7. Enter here and on line 2 of the Credit Limit Worksheet (see instructions) . 9

10 After completing Part III for each student, enter the total of all amounts from all Parts III, line 31. If

zero, skip lines 11 through 17, enter -0- on line 18, and go to line 19 . . . . . . . ... . 10

11 Enter the smaller of line 10 or $10,000 . . . . . . . . . . . ... . . . ... . 11

12 Multiply line 11 by 20% (0.20) . . ... . . . . . . ... . . . .... . . . 12

13 Enter: $180,000 if married ling jointly; $90,000 if single, head of household, or 

qualifying widow(er) . . ... . . . . . . ... . . . . . 13

14 Enter the amount from Form 1040 or 1040-SR, line 11. If you're ling Form

2555 or 4563, or you’re excluding income from Puerto Rico, see Pub. 970 for 

the amount to enter . . . . . . . . . ... . . . ... . 14

15 Subtract line 14 from line 13. If zero or less, skip lines 16 and 17, enter -0- on

line 18, and go to line 19 . . . . . . ... . . . .... . 15

16 Enter: $20,000 if married ling jointly; $10,000 if single, head of household, or 

qualifying widow(er) . . ... . . . . . . ... . . . . . 16

17 If line 15 is: 

• Equal to or more than line 16, enter 1.000 on line 17 and go to line 18 

• Less than line 16, divide line 15 by line 16. Enter the result as a decimal (rounded to at least three 

places) . . . . . . . . . . . . . . . ..... . . ....... . 17 .

18 Multiply line 12 by line 17. Enter here and on line 1 of the Credit Limit Worksheet (see instructions) 18

19 Nonrefundable education credits. Enter the amount from line 7 of the Credit Limit Worksheet (see 

instructions) here and on Schedule 3 (Form 1040), line 3 . . . . . . . . . . . ... . 19

For Paperwork Reduction Act Notice, see your tax return instructions. Cat. No. 25379M Form 8863 (2021)

Dave and Valerie Jones 001 00 0000

2,500

180,000

130,000

50,000

20,000

2,500

1,000

1,500

7,000

7,000

1,400

180,000

1 000

1 000

130,000

50,000

20,000

1,400

1,003

Publication 970 (2021) Page 77
Form 8863 (2021) Page 2 

Name(s) shown on return Your social security number

!

CAUTION

Complete Part III for each student for whom you’re claiming either the American 

opportunity credit or lifetime learning credit. Use additional copies of page 2 as needed for 

each student.

Part III Student and Educational Institution Information. See instructions.

20 Student name (as shown on page 1 of your tax return) 21 Student social security number (as shown on page 1 of 

your tax return)

22 Educational institution information (see instructions)

a. Name of rst educational institution

(1) Address. Number and street (or P.O. box). City, town or 

post ofce, state, and ZIP code. If a foreign address, see 

instructions.

(2) Did the student receive Form 1098-T 

from this institution for 2021? Yes No

(3) Did the student receive Form 1098-T 

from this institution for 2020 with box 

7 checked?

Yes No

(4) Enter the institution’s employer identication number (EIN) 

if you’re claiming the American opportunity credit or if you 

checked “Yes” in (2) or (3). You can get the EIN from Form 

1098-T or from the institution.

–

b. Name of second educational institution (if any)

(1) Address. Number and street (or P.O. box). City, town or 

post ofce, state, and ZIP code. If a foreign address, see 

instructions.

(2) Did the student receive Form 1098-T 

from this institution for 2021? Yes No

(3) Did the student receive Form 1098-T 

from this institution for 2020 with box 

7 checked?

Yes No

(4) Enter the institution’s employer identication number 

(EIN) if you’re claiming the American opportunity credit or 

if you checked “Yes” in (2) or (3). You can get the EIN 

from Form 1098-T or from the institution.

–

23 Has the Hope Scholarship Credit or American opportunity 

credit been claimed for this student for any 4 tax years 

before 2021?

Yes — Stop!

Go to line 31 for this student. No — Go to line 24.

24 Was the student enrolled at least half-time for at least one 

academic period that began or is treated as having begun in 

2021 at an eligible educational institution in a program 

leading towards a postsecondary degree, certicate, or 

other recognized postsecondary educational credential? 

See instructions. 

Yes — Go to line 25. No — Stop! Go to line 31 

for this student.

25 Did the student complete the rst 4 years of postsecondary 

education before 2021? See instructions.

Yes — Stop! 

Go to line 31 for this 

student.

No — Go to line 26.

26 Was the student convicted, before the end of 2021, of a 

felony for possession or distribution of a controlled 

substance?

Yes — Stop! 

Go to line 31 for this 

student.

No — Complete lines 27 

through 30 for this student.

!

CAUTION

You can't take the American opportunity credit and the lifetime learning credit for the same student in the same year. If 

you complete lines 27 through 30 for this student, don’t complete line 31.

American Opportunity Credit 

27 Adjusted qualied education expenses (see instructions). Don’t enter more than $4,000 . . . . . 27

28 Subtract $2,000 from line 27. If zero or less, enter -0-. . . . . . . . . . . ... . . . 28

29 Multiply line 28 by 25% (0.25) . . ... . . . . . . ... . . . .... . . . 29

30 If line 28 is zero, enter the amount from line 27. Otherwise, add $2,000 to the amount on line 29 and 

enter the result. Skip line 31. Include the total of all amounts from all Parts III, line 30, on Part I, line 1 . 30

Lifetime Learning Credit

31 Adjusted qualied education expenses (see instructions). Include the total of all amounts from all Parts 

III, line 31, on Part II, line 10 . . ... . . . . . . ... . . . .... . . . . 31

Form 8863 (2021)

Dave and Valerie Jones 001 00 0000

Carey Jones

California State College

1Education Way, Modesto, CA 23232

√

√

1 2 1 2 3 4 5 4 5

√

2,500

√

√

4,000

2,000

500

000 00 0002

√

Page 78 Publication 970 (2021)
Form 8863 (2021) Page 2 

Name(s) shown on return Your social security number

!

CAUTION

Complete Part III for each student for whom you’re claiming either the American 

opportunity credit or lifetime learning credit. Use additional copies of page 2 as needed for 

each student.

Part III Student and Educational Institution Information. See instructions.

20 Student name (as shown on page 1 of your tax return) 21 Student social security number (as shown on page 1 of 

your tax return)

22 Educational institution information (see instructions)

a. Name of rst educational institution

(1) Address. Number and street (or P.O. box). City, town or 

post ofce, state, and ZIP code. If a foreign address, see 

instructions.

(2) Did the student receive Form 1098-T 

from this institution for 2021? Yes No

(3) Did the student receive Form 1098-T 

from this institution for 2020 with box 

7 checked?

Yes No

(4) Enter the institution’s employer identication number (EIN) 

if you’re claiming the American opportunity credit or if you 

checked “Yes” in (2) or (3). You can get the EIN from Form 

1098-T or from the institution.

–

b. Name of second educational institution (if any)

(1) Address. Number and street (or P.O. box). City, town or 

post ofce, state, and ZIP code. If a foreign address, see 

instructions.

(2) Did the student receive Form 1098-T 

from this institution for 2021? Yes No

(3) Did the student receive Form 1098-T 

from this institution for 2020 with box 

7 checked?

Yes No

(4) Enter the institution’s employer identication number 

(EIN) if you’re claiming the American opportunity credit or 

if you checked “Yes” in (2) or (3). You can get the EIN 

from Form 1098-T or from the institution.

–

23 Has the Hope Scholarship Credit or American opportunity 

credit been claimed for this student for any 4 tax years 

before 2021?

Yes — Stop!

Go to line 31 for this student. No — Go to line 24.

24 Was the student enrolled at least half-time for at least one 

academic period that began or is treated as having begun in 

2021 at an eligible educational institution in a program 

leading towards a postsecondary degree, certicate, or 

other recognized postsecondary educational credential? 

See instructions. 

Yes — Go to line 25. No — Stop! Go to line 31 

for this student.

25 Did the student complete the rst 4 years of postsecondary 

education before 2021? See instructions.

Yes — Stop! 

Go to line 31 for this 

student.

No — Go to line 26.

26 Was the student convicted, before the end of 2021, of a 

felony for possession or distribution of a controlled 

substance?

Yes — Stop! 

Go to line 31 for this 

student.

No — Complete lines 27 

through 30 for this student.

!

CAUTION

You can't take the American opportunity credit and the lifetime learning credit for the same student in the same year. If 

you complete lines 27 through 30 for this student, don’t complete line 31.

American Opportunity Credit 

27 Adjusted qualied education expenses (see instructions). Don’t enter more than $4,000 . . . . . 27

28 Subtract $2,000 from line 27. If zero or less, enter -0-. . . . . . . . . . . ... . . . 28

29 Multiply line 28 by 25% (0.25) . . ... . . . . . . ... . . . .... . . . 29

30 If line 28 is zero, enter the amount from line 27. Otherwise, add $2,000 to the amount on line 29 and 

enter the result. Skip line 31. Include the total of all amounts from all Parts III, line 30, on Part I, line 1 . 30

Lifetime Learning Credit

31 Adjusted qualied education expenses (see instructions). Include the total of all amounts from all Parts 

III, line 31, on Part II, line 10 . . ... . . . . . . ... . . . .... . . . . 31

Form 8863 (2021)

Dave and Valerie Jones 001 00 0000

Sean Jones 000 00 0001

California State College

1Education Way, Modesto, CA 23232

√

√

1 2 1 2 3 4 5 4 5

7,000

√

Publication 970 (2021) Page 79
Highlights of Education Tax Benefits for Tax Year 2021 This chart highlights some differences among the benefits discussed in this publication. See the text for definitions and details. Don't rely on this chart alone. Caution: You generally can't claim more than one benefit for the same education expense. Appendix B. Scholarships, Fellowship Grants, Grants, and Tuition Reductions American Opportunity Credit Lifetime Learning Credit Student Loan Interest Deduction Coverdell ESA† Qualified Tuition Program (QTP)† Education Exception to Additional Tax on Early IRA Distributions† Education Savings Bond Program† Employer- Provided Educational Assistance† Business Deduction for Work-Related Education What is your benefit? Amounts received may not be taxable Credits can reduce the amount of tax you must pay. 40% of the credit may be refundable (limited to $1,000 per student). Credits can reduce the amount of tax you must pay Can deduct interest paid Earnings not taxed Earnings not taxed No 10% additional tax on early distribution Interest not taxed Employer benefits not taxed Individuals who are self- employed, Armed Forces reservists, qualified performing artists, fee- based officials, or disabled can deduct certain expenses What is the annual limit? None $2,500 credit per student $2,000 credit per tax return $2,500 deduction $2,000 contribution per beneficiary None Amount of qualified education expenses Amount of qualified education expenses $5,250 exclusion Amount of qualifying work-related education expenses What expenses qualify besides tuition and required enrollment fees? Course-related expenses such as fees, books, supplies, and equipment Course-related books, supplies, and equipment Amounts paid for required books, etc., that must be paid to the educational institution are required fees Books Supplies Equipment Room & board Transportation Other necessary expenses Books Supplies Equipment Computer equipment, computer software, or Internet access and related services Expenses for special needs services Payments to QTP Higher education: Room & board if 

at least half-time student

Elem/sec (K–12) education: See chapter 6

Higher education:BooksSuppliesEquipmentComputer equipment, computer software, or Internet access and related servicesExpenses for special needs servicesRoom & board if at least half-time student

Elem/sec (K-12) education: See chapter 7

BooksSuppliesEquipmentRoom & board if at least half-time studentExpenses for special needs services

Payments to Coverdell ESAPayments to QTP

BooksSuppliesEquipment

TransportationTravelOther necessary expenses

Page 80 Publication 970 (2021)
Scholarships, Fellowship Grants, Grants, and Tuition Reductions American Opportunity Credit Lifetime Learning Credit Student Loan Interest Deduction Coverdell ESA† Qualified Tuition Program (QTP)† Education Exception to Additional Tax on Early IRA Distributio ns† Education Savings Bond Program† Employer- Provided Educational Assistance† Business Deduction for Work-Related Education What education qualifies? Undergraduate & graduate K–12 Undergraduate & graduate Undergraduate & graduate Courses to acquire or improve job skills Undergraduate & graduate Undergraduate & graduate K–12 Undergraduate & graduate K–12 for no more than $10,000 of tuition Undergradu ate & graduate Undergraduate & graduate Undergraduate & graduate Required by employer or law to keep present job, salary, status Maintain or improve job skills What are some of the other conditions that apply? Must be in degree or vocational program Payment of tuition and required fees must be allowed under the grant Can be claimed for only 4 tax years Must be enrolled at least half-time in degree program No felony drug conviction(s) Must not have completed first 4 years of postsecondary education before end of preceding tax year No other conditions Must have been at least half-time student in degree program Assets must be distributed at age 30 unless special needs beneficiary No other conditions No other conditions Applies only to qualified series EE bonds issued after 1989 or series I bonds No other conditions Can't be to meet minimum educational requirements of present trade/ business Can't qualify you for new trade/ business In what income range do benefits phase out? No phaseout $80,000 – $90,000 $160,000 – $180,000 for joint returns $80,000 – $90,000 $160,000 – $180,000 for joint returns $70,000 – $85,000 $140,000 – $170,000 for joint returns $95,000 – $110,000 $190,000 – $220,000 for joint returns No phaseout No phaseout $83,200 – $98,200 $124,800– $154,800 for joint returns No phaseout No phaseout †Any nontaxable distribution is limited to the amount that doesn't exceed qualified education expenses.

Publication 970 (2021) Page 81
Glossary

The education benefits included in this 

publication were enacted over many 

years, leading to a number of common 

terms being defined differently from 

one benefit to the next. For example, 

an eligible educational institution 

means one thing when determining if 

earnings from a Coverdell education 

savings account aren't taxable and 

something else when determining if a 

scholarship or fellowship grant isn't 

taxable.

For each term listed below that has 

more than one definition, the definition 

for each education benefit is listed.

Academic period: A semester, trimester, quarter, or other period of 

study (such as a summer school session) as reasonably determined by an 

educational institution. If an educational institution uses credit hours or 

clock hours and doesn't have academic terms, each payment period can 

be treated as an academic period.

Adjusted qualified education expenses (AQEE): Qualified education 

expenses (defined later) reduced by 

any tax-free educational assistance, 

such as a tax-free scholarship or employer-provided educational assistance. They must also be reduced by 

any qualified education expenses deducted elsewhere on your return, used 

to determine an education credit or 

other benefit, or used to determine a 

tax-free distribution. For information on 

a specific benefit, see the appropriate 

chapter in this publication.

Candidate for a degree: A student 

who meets either of the following requirements.

1. Attends a primary or secondary 

school or pursues a degree at a 

college or university.

2. Attends an accredited educational 

institution that is authorized to provide:

a. A program that is acceptable 

for full credit toward a bachelor's or higher degree, or

b. A program of training to prepare students for gainful employment in a recognized occupation.

Designated beneficiary: The individual named in the document creating 

the account/plan who is to receive the 

benefit of the funds in the account/

plan.

Eligible educational institution: 

1. American opportunity credit. 

Any college, university, vocational 

school, or other postsecondary educational institution eligible to participate in a student aid program 

administered by the U.S. Department of Education. It includes virtually all accredited public, nonprofit, and proprietary (privately 

owned profit-making) postsecondary institutions.

2. Coverdell education savings 

account (ESA). Any college, university, vocational school, or other 

postsecondary educational institution eligible to participate in a student aid program administered by 

the U.S. Department of Education. 

It includes virtually all accredited 

public, nonprofit, and proprietary 

(privately owned profit-making) 

postsecondary institutions. Also included is any public, private, or religious school that provides elementary or secondary education 

(kindergarten through grade 12), 

as determined under state law.

3. Education savings bond program. Same as American opportunity credit in this category.

4. IRA, early distributions from. 

Same as American opportunity 

credit in this category.

5. Lifetime learning credit. Same 

as American opportunity credit in 

this category.

6. Qualified tuition program 

(QTP). Generally, same as Coverdell education savings account 

(ESA) in this category.

7. Scholarships and fellowship 

grants. An institution that maintains a regular faculty and curriculum and normally has a regularly 

enrolled body of students in attendance at the place where it carries on its educational activities.

8. Student loan, cancellation of. 

Same as Scholarships and fellowship grants in this category.

9. Student loan interest deduction. Any college, university, vocational school, or other postsecondary educational institution eligible 

to participate in a student aid program administered by the U.S. Department of Education. It includes 

virtually all accredited public, nonprofit, and proprietary (privately 

owned profit-making) postsecondary institutions. Also included is 

an institution that conducts an internship or residency program 

leading to a degree or certificate 

from an institution of higher education, a hospital, or a health care facility that offers postgraduate training.

Eligible student: 

1. American opportunity credit. A 

student who meets all of the following requirements for the tax 

year for which the credit is being 

determined.

• Didn't have expenses that 

were used to figure an American opportunity credit in any 4 

earlier tax years.

• Hadn't completed the first 4 

years of postsecondary education (generally, the freshman 

through senior years) in an 

earlier tax year.

• For at least one academic period beginning in the tax year, 

was enrolled at least half-time 

in a program leading to a degree, certificate, or other recognized educational credential 

at an eligible educational institution.

Page 82 Publication 970 (2021)
• Was free of any federal or 

state felony conviction for possessing or distributing a controlled substance as of the end 

of the tax year.

2. Lifetime learning credit. A student who is enrolled in one or 

more courses at an eligible educational institution.

3. Student loan interest deduction. A student who was enrolled 

at least half-time in a program 

leading to a postsecondary degree, certificate, or other recognized educational credential at an 

eligible educational institution.

Half-time student: A student who is 

enrolled for at least half the full-time 

academic workload for the course of 

study the student is pursuing, as determined under the standards of the 

school where the student is enrolled.

Modified adjusted gross income 

(MAGI): 

1. American opportunity credit. 

Adjusted gross income (AGI) as 

figured on the federal income tax 

return, modified by adding back 

any:

• Foreign earned income exclusion,

• Foreign housing exclusion,

• Foreign housing deduction,

• Exclusion of income by bona 

fide residents of American Samoa, and

• Exclusion of income by bona 

fide residents of Puerto Rico.

2. Coverdell education savings 

account (ESA). Same as American opportunity credit in this category.

3. Education savings bond program. Adjusted gross income 

(AGI) as figured on the federal income tax return without taking into 

account any savings bond interest 

exclusion and modified by adding 

back any:

• Foreign earned income exclusion,

• Foreign housing exclusion,

• Foreign housing deduction,

• Exclusion of income by bona 

fide residents of American Samoa,

• Exclusion of income by bona 

fide residents of Puerto Rico,

• Exclusion for adoption benefits 

received under an employer's 

adoption assistance program, 

and

• Deduction for student loan interest.

4. Lifetime learning credit. Same 

as American opportunity credit in 

this category.

5. Student loan interest deduction. Adjusted gross income (AGI) 

as figured on the federal income 

tax return without taking into account any student loan interest deduction, and modified by adding 

back any:

• Foreign earned income exclusion,

• Foreign housing exclusion,

• Foreign housing deduction,

• Exclusion of income by bona 

fide residents of American Samoa, and

• Exclusion of income by bona 

fide residents of Puerto Rico.

Phaseout: The amount of credit or 

deduction allowed is reduced when the 

modified adjusted gross income 

(MAGI) is greater than a specified 

amount of income.

Qualified education expenses: See 

the pertinent chapter for specific items.

1. American opportunity credit. 

Tuition and certain related expenses (including student activity 

fees) required for enrollment or attendance at an eligible educational 

institution. Books, supplies, and 

equipment needed for a course of 

study are included even if not purchased from the educational institution. Doesn't include expenses 

for room and board. Doesn't include expenses for courses involving sports, games, or hobbies (including noncredit courses) that 

aren't part of the student's postsecondary degree program.

2. Coverdell education savings 

account (ESA). Expenses related 

to or required for enrollment or attendance of the designated beneficiary at an eligible elementary, 

secondary, or postsecondary 

school. Includes computer or peripheral equipment, computer software, or Internet access and related services. Many specialized 

expenses included for K–12. Also 

includes expenses for special 

needs services and contributions 

to a qualified tuition program 

(QTP).

3. Education savings bond program. Tuition and fees required to 

enroll at or attend an eligible educational institution. Also includes 

contributions to a qualified tuition 

program (QTP) or Coverdell education savings account (ESA). 

Doesn't include expenses for room 

and board. Doesn't include expenses for courses involving sports, 

games, or hobbies that aren't part 

of a degree or certificate-granting 

program.

4. IRA, early distributions from. 

Tuition, fees, books, supplies, and 

equipment required for enrollment 

or attendance at an eligible educational institution, plus certain limited costs of room and board for 

students who are enrolled at least 

half-time. Also includes expenses 

for special needs services incurred 

by or for special needs students in 

connection with their enrollment or 

attendance.

5. Lifetime learning credit. Tuition 

and certain related expenses required for enrollment or attendance at an eligible educational institution. Student activity fees and 

expenses for course-related 

books, supplies, and equipment 

are included only if the fees and 

expenses must be paid to the institution as a condition of enrollment 

or attendance. Doesn't include expenses for room and board. 

Doesn't include expenses for courses involving sports, games, or 

hobbies (including noncredit courses) that aren't part of the student's postsecondary degree program, unless taken by the student 

to acquire or improve job skills.

Publication 970 (2021) Page 83
6. Qualified tuition program 

(QTP). Tuition, fees, books, supplies, and equipment required for 

enrollment or attendance at an eligible higher educational institution, 

plus certain limited costs of room 

and board for students who are enrolled at least half-time. Includes 

computer or peripheral equipment, 

computer software, or Internet access and related services. Also includes expenses for special needs 

services and computer access. 

Also, for amounts paid from distributions made after 2017, includes 

no more than $10,000 of elementary and secondary school (K–12) 

tuition incurred after 2017.

7. Scholarships and fellowship 

grants. Expenses for tuition and 

fees required to enroll at or attend 

an eligible educational institution, 

and course-related expenses, 

such as fees, books, supplies, and 

equipment that are required for the 

courses at the eligible educational 

institution. Course-related items 

must be required of all students in 

the course of instruction.

8. Student loan interest deduction. Total costs of attending an eligible educational institution, including graduate school (however, 

limitations may apply to the cost of 

room and board allowed).

Recapture: To include as income on 

your current year's return an amount 

allowed as a deduction in a prior year. 

To include as tax on your current year's 

return an amount allowed as a credit in 

a prior year.

Rollover: A tax-free distribution to 

you of cash or other assets from a 

tax-favored plan that you contribute to 

another tax-favored plan.

Transfer: A movement of funds in a 

tax-favored plan from one trustee directly to another, either at your request 

or at the trustee's request.

Page 84 Publication 970 (2021)
To help us develop a more useful index, please let us know if you have ideas for index entries.

Index See “Comments and Suggestions” in the “Introduction” for the ways you can reach us.

529 program (See Qualified tuition 

program (QTP))

A

Academic period:

American opportunity credit 12

Lifetime learning credit 24

Student loan interest deduction 32

Accountable plans 65, 66

Additional tax:

Coverdell ESA:

On excess contributions 44

On taxable distributions 48

IRA distributions, education 

exception 55

Qualified tuition program (QTP), on 

taxable distributions 54

Adjusted qualified education 

expenses (See Qualified education 

expenses)

American opportunity credit:

Adjustments to qualified education 

expenses 14

Claiming dependent's expenses 19, 20

Tuition reduction 20

Claiming the credit 11, 12, 22

Qualifying to claim (Figure 2-1) 13

Contrast to the lifetime learning 

credits 80

Coordination with Coverdell ESA 

distributions 47

Coordination with qualified tuition 

program (QTP) distributions 53

Eligible educational institution 13

Eligible student 18

Requirements (Figure 2-2) 19

Expenses qualifying for 12, 16

Figuring the credit 20

Income level, effect on amount of 

credit 21

Income limits 21

Modified adjusted gross income 

(MAGI) 22

Modified adjusted gross income (MAGI)

Worksheet 2-1 21

Overview of American opportunity credit 

(Table 2-1) 11

Phaseout 21

Qualified education expenses 13

Tax benefit of 10

Armed Forces Health Professions 

Scholarship and Financial 

Assistance Program 8

Assistance (See Tax help)

Athletic scholarships 6

B

Bar review course 63

Bonds, education 

savings (See Education savings bond 

program)

Business deduction for work-related 

education 59

Accountable plans 65, 66

Adjustments to qualifying work-related 

education expenses 65

Allocating meal reimbursements 66

Deductible education expenses 63, 65

Deducting business expenses 66, 67

Double benefit not allowed 65

Education required by employer or by 

law 60

Education to maintain or improve 

skills 60

Education to meet minimum 

requirements 61, 62

Education to qualify for new trade or 

business 62, 63

Excess expenses, accountable plan 66

Indefinite absence 61

Maintaining skills vs. qualifying for new 

job 60

Nonaccountable plans 66

Nondeductible expenses 63

Qualified education expenses 63, 65

Recordkeeping requirements 67

Reimbursements, treatment of 65, 66

Tax benefit of 60

Tax-free educational assistance 65

Teachers 62, 63

Temporary absence to acquire 

education 60

Transportation expenses 63, 64

Travel expenses 64

C

Cancellation of student 

loan (See Student loan cancellation)

Candidate for a degree:

Scholarships and fellowship grants 6

Change of designated beneficiary:

Coverdell ESA 45

Qualified tuition program 55

Comprehensive or bundled fees:

American opportunity credit 18

Lifetime learning credit 29

Conventions outside U.S. 64

Coverdell education savings account 

(ESA) 39–50

Additional tax:

On excess contributions 44

On taxable distributions 48

Assets to be distributed at age 30 or 

death of beneficiary 49

Contribution limits 42, 43

Figuring the limit (Worksheet 6-1) 43

Contributions to 41, 44

Table 6-2 42

Coordination with American opportunity 

and lifetime learning credits 47

Coordination with qualified tuition 

program (QTP) 47

Defined 40

Distributions 45, 49

Overview (Table 6-3) 46

Divorce, transfer due to 45

Eligible educational institution 40

Figuring taxable portion of 

distribution 46

Worksheet 6-3 50

Figuring the taxable earnings in 

required distribution 49

Losses 48

Modified adjusted gross income 

(MAGI) 42

Worksheet 6-2 43

Overview (Table 6-1) 40

Qualified education expenses 40, 41

Rollovers 44

Taxable distributions 46–49

Worksheet 6-3 to figure 50

Tax benefit of 39

Tax-free distributions 46

Transfers 44

CPA review course 63

Credits:

American opportunity (See American 

opportunity credit)

Lifetime learning (See Lifetime learning 

credit)

Cruises, educational 64

D

Deductions (See Business deduction for 

work-related education)

Designated beneficiary:

Coverdell ESA 40, 45

Qualified tuition program (QTP) 51, 55

Disabilities, persons with:

Impairment-related work expenses 67

Distributions (See specific benefit)

Divorce:

Coverdell ESA transfer due to 45

Expenses paid under decree:

American opportunity credit 20

Lifetime learning credit 29

Double benefit not allowed:

American opportunity credit 14

Lifetime learning credit 25

Student loan interest deduction 35

Work-related education 65

E

Early distributions from IRAs 55, 56

Eligible educational institution 55

Figuring amount not subject to 10% 

tax 56

Qualified education expenses 55

Reporting 56

Educational assistance, 

employer-provided (See Employer-pr

ovided educational assistance)

Education IRA (See Coverdell education 

savings account (ESA))

Education loans (See Student loan 

interest deduction)

Education savings 

account (See Coverdell education 

savings account (ESA))

Education savings bond program:

Cashing in bonds tax free 57, 58

Claiming exclusion 58

Eligible educational institution 57

Figuring tax-free amount 58

Income level, effect on amount of 

exclusion 58

Modified adjusted gross income 

(MAGI) 58

Phaseout 58

Qualified education expenses 57

Eligible educational institution:

American opportunity credit 13

Coverdell ESA 40

Early distributions from IRAs 55

Education savings bond program 57

Lifetime learning credit 24

Qualified tuition program (QTP) 51

Qualified tuition reduction 8

Scholarships and fellowship grants 6, 8

Student loan interest deduction 33

Eligible elementary or secondary 

school:

Coverdell ESA 40

Publication 970 (2021) Page 85
Eligible student:

American opportunity credit 18

Lifetime learning credit 29

Student loan interest deduction 32

Employer-provided educational 

assistance 58, 59

ESAs (See Coverdell education savings 

account (ESA))

Estimated tax 3

Excess contributions:

Coverdell ESA 44

Excess expenses, accountable plan 66

Expenses (See specific benefit)

F

Family members, beneficiary:

Coverdell ESA 45

Qualified tuition program (QTP) 54

Fee-basis officials, work-related 

education deduction 66

Fellowship grants (See Scholarships and 

fellowship grants)

Figures (See Tables and figures)

Figuring tax-free and taxable 

(Worksheet 1-1) 6

Financial aid (See Scholarships and 

fellowship grants)

Form 1098-E:

Student loan interest deduction 33, 35

Form 1098-T:

American opportunity credit 20

Lifetime learning credit 30

Form 1099-Q:

Coverdell ESA 44, 46

Qualified tuition program (QTP) 52

Form 1099-R:

Early distributions from IRAs 56

Form 2106 65

Form 5329:

Coverdell ESA 49

Early distributions from IRAs 56

Qualified tuition program (QTP) 54

Form 8815 58

Form 8863:

Filled-in examples 77

Form W-9S 20, 30, 35

Fulbright grants 7

G

Glossary 4, 82–84

Graduate education tuition reduction 9

Grants:

Fulbright 7

Pell 8

Title IV need-based education 8

H

Half-time student:

American opportunity credit 18

Coverdell ESA 41

Early distributions from IRAs 56

Student loan interest deduction 32

I

Illustrated example of education 

credits (Appendix A) 72–77

Impairment-related work expenses:

Work-related education deduction 67

Individual retirement arrangements 

(IRAs) (See Early distributions from 

IRAs)

L

Lifetime learning credit 23

Academic period 24

Adjustments to qualified education 

expenses 25

Claiming dependent's expenses 29

Tuition reduction 30

Claiming the credit 23, 24, 31

Qualifying to claim (Figure 3-1) 26

Contrast to the American opportunity 

credit 80

Coordination with Coverdell ESA 

distributions 47

Coordination with qualified tuition 

program (QTP) distributions 53

Eligible educational institution 24

Eligible student 29

Expenses qualifying for 24–27

Figuring the credit 30, 31

Income level, effect on amount of 

credit 30, 31

Income limits 30

Modified adjusted gross income 

(MAGI) 30

Worksheet 3-1 30

Overview (Table 3-1) 24

Phaseout 30

Qualified education expenses 24, 27

Qualifying to claim (Figure 3-1) 26

Tax benefit of 23

Loans:

Cancellation (See Student loan 

cancellation)

Capitalized interest on student loan 33

Origination fees on student loan 33

Qualified education expenses paid with:

American opportunity credit 12

Lifetime learning credit 24

Student loan repayment assistance 39

Losses, deducting:

Coverdell ESA 48

Qualified tuition program (QTP) 54

Luxury water transportation 64

M

Mileage deduction for work-related 

education 59, 64

Military academy cadets 8

Missing children, photographs of 3

Modified adjusted gross income 

(MAGI):

American opportunity credit 22

Coverdell ESA 42

Worksheet 6-1 43

Education savings bond program 58

Lifetime learning credit 30

Worksheet 3-1 30

Student loan interest deduction 35

Table 4-2 35

N

National Health Service Corps 

Scholarship Program 6, 8

Nonaccountable plans:

Work-related education 66

P

Pell grants 8, 28

Performing artists, work-related 

education deduction 66

Phaseout:

American opportunity credit 21

Education savings bond program 58

Lifetime learning credit 30

Student loan interest deduction 35, 36

Publications (See Tax help)

Q

Qualified education expenses:

Adjustments to:

American opportunity credit 14–16

Coverdell ESA 46

Education savings bond program 57

Lifetime learning credit 25

Qualified tuition program (QTP) 52

Student loan interest deduction 33

Work-related education 65

American opportunity credit 13–16

Coverdell ESA 40, 41

Early distributions from IRAs 55

Education savings bond program 57

Expenses not qualified:

American opportunity credit 17, 18

Lifetime learning credit 29

Lifetime learning credit 24–27

Qualified tuition program (QTP) 51

Scholarships and fellowship grants 6

Student loan interest deduction 32

Work-related education 63–65

Qualified elementary and secondary 

education expenses:

Coverdell ESAs 41

Qualified employer plans:

Student loan interest deduction not 

allowed 32

Qualified student loans 32

Qualified tuition program (QTP) 51–55

Additional tax on taxable 

distributions 54

Change of designated beneficiary 55

Contributions to 52

Coordination with American opportunity 

and lifetime learning credits 53

Coordination with Coverdell ESA 

distributions 53

Defined 51

Eligible educational institution 51

Figuring taxable portion of 

distribution 52

Losses 54

Recontribution 52

Rollovers 54, 55

Taxability of distributions 52–54

Taxable earnings 53

Tax benefit of 51

Transfers 54, 55

Qualified tuition reduction 8, 9

Qualified U.S. savings bonds 57

Qualifying work-related 

education 60–63

Determining if qualified (Figure 

11-1) 61

R

Recapture:

American opportunity credit 15

Lifetime learning credit 27

Recordkeeping requirements:

Work-related education 67

Refinanced and consolidated student 

loans 33

Reimbursements:

Nondeductible expenses 66

Work-related education 65, 66

Related persons:

Coverdell ESA 45

Qualified tuition program (QTP) 54

Page 86 Publication 970 (2021)
Student loan interest deduction 32

Repayment programs (See Student loan 

repayment assistance)

Reporting:

American opportunity credit 22

Coverdell ESA 44, 46, 49

Early distributions from IRAs 56

Education savings bond program 58

Lifetime learning credit 31

Qualified tuition program (QTP) 53, 54

Scholarships and fellowship grants, 

taxable 7

Student loan interest deduction 36

Tuition reduction, taxable 9

Work-related education expenses 66, 

67

Revolving lines of credit, interest on 33

Rollovers:

Coverdell ESA 44

Qualified tuition program (QTP) 54, 55

S

Scholarships and fellowship grants 5, 

7, 28

Athletic scholarships 6

Eligible educational institution 6, 8

Qualified education expenses 6

Reporting 7

Scholarship, defined 5

Taxable 7

Tax-free 6

Tax treatment of 6

Section 501(c)(3) 

organizations (See Student loan 

cancellation)

Section 529 program (See Qualified 

tuition program (QTP))

Self-employed persons:

Deducting work-related education 

expenses 66

Service academy cadets 8

Sports, games, hobbies, and noncredit 

courses:

American opportunity credit 17

Education savings bond program 57

Lifetime learning credit 29

Standard mileage rate:

Work-related education 59, 64

State prepaid education 

accounts (See Qualified tuition 

program (QTP))

Student loan cancellation 38

Section 501(c)(3) organizations 39

Student loan interest deduction:

Academic period 32

Adjustments to qualified education 

expenses 33

Allocation between interest and 

principal 33, 34

Claiming the deduction 36

Eligible educational institution 33

Eligible student 32

Figuring the deduction 35, 36

Include as interest 33

Income level, effect on amount of 

deduction 35

Loan repayment assistance 34

Modified adjusted gross income 

(MAGI) 35, 36

Table 4-2 35

Not included as interest 34

Phaseout 35, 36

Qualified education expenses 32

Qualified employer plans 32

Qualified student loans 32

Reasonable period of time 32

Related persons 32

Student loan interest, defined 32, 34

Third-party interest payments 34

When interest must be paid 34

Worksheet 4-1 37

Student loan repayment assistance 39

Surviving spouse:

Coverdell ESA transfer to 49

T

Tables and figures:

American opportunity credit:

Eligible student requirements (Figure 

2-2) 19

Overview (Table 2-1) 11

Qualifying to claim (Figure 2-1) 13

Comparison of education tax benefits 

(Appendix B) 80

Coverdell ESAs:

Contributions to (Table 6-2) 42

Distributions (Table 6-3) 46

Overview (Table 6-1) 40

Education credits:

Overview of American opportunity 

credit (Table 2-1) 11

Overview of lifetime learning credit 

(Table 3-1) 24

Lifetime learning credit:

Overview (Table 3-1) 24

Qualifying to claim (Figure 3-1) 26

Scholarships and fellowship grants, 

taxability of 6

Student loan interest deduction:

MAGI, effect of (Table 4-2) 35

Overview (Table 4-1) 31

Summary chart of differences between 

education tax benefits (Appendix 

B) 80

Work-related education, qualifying 

(Figure 11-1) 61

Taxable scholarships and fellowship 

grants 7

Tax-free educational assistance:

American opportunity credit 14

Coverdell ESA 46

Early distributions from IRAs 56

Education savings bond program 57

Lifetime learning credit 25

Qualified tuition program (QTP) 52

Work-related education 65

Tax help 67

Teachers 62, 63

Temporary-basis student, 

transportation expenses of 63

Title IV need-based education grants 8

Transfers:

Coverdell ESA 44

Qualified tuition program (QTP) 54, 55

Transportation expenses:

Work-related education 63, 64

Travel expenses:

50% limit on meals 64

Not deductible as form of education 65

Work-related education 64

Tuition reduction:

American opportunity credit 20

Lifetime learning credit 30

Qualified 8, 9

U

U.S. savings bonds 57

Unclaimed reimbursement:

Work-related education 63

V

Veterans' benefits 8

W

Withholding 4

Working condition fringe benefit 59

Work-related education (See Business 

deduction for work-related education)

Worksheets 7

American opportunity credit MAGI 

calculation (Worksheet 2-1) 21

Coverdell ESA:

Contribution limit (Worksheet 

6-1) 43

MAGI, calculation of (Worksheet 

6-1) 43

Taxable distributions and basis 

(Worksheet 6-3) 50

Lifetime learning credit MAGI 

calculation (Worksheet 3-1) 30

Student loan interest deduction 

(Worksheet 4-1) 37

Publication 970 (2021) Page 87