Back to School: Tax Tips Every Family Should Know

As the new school year approaches, families often focus on school supplies and schedules—but don’t forget tax planning! Several tax credits and deductions can help families offset education costs, both for K-12 and college. 

 

Top Education Tax Benefits for 2025

 

American Opportunity Tax Credit (AOTC)

• Who Qualifies: Parents or students in their first four years of college, pursuing a degree or recognized credential.

• Benefit: Up to $2,500 in credits per eligible student per year, based on qualified expenses (tuition, fees, course materials).

• Refundable Portion: Up to $1,000 may be refunded even if you owe no tax.

• Income Limits: Full credit for modified AGI ≤$80,000 ($160,000 joint); phases out after this12.

• How to Claim: File IRS Form 8863 and use the 1098-T from your school.

Lifetime Learning Credit (LLC)

• Who Qualifies: Anyone paying for postsecondary education, including continuing education and job skills courses.

• Benefit: Up to $2,000 credit per tax return, not per student.

• Years Available: Unlimited; available for all years of post-high school education.

• Qualified Expenses: Tuition, required fees and some course materials.

Tax-Free 529 Plan Withdrawals

• K-12 Tuition: Up to $10,000/year per student can be withdrawn tax-free for K-12 tuition from a 529 college savings plan.

• Expanded K-12 Expenses: Additional qualified K-12 expenses now include books, curricular materials, online learning, tutoring, and educational therapies (including for students with disabilities)

• College Expenses: Higher education withdrawals cover tuition, fees, books, equipment and in certain cases, room & board.

Child and Dependent Care Credit

• For After-School Care: If you pay for care so that you can work or look for work, you may qualify for a tax credit on expenses for children under 13.

• Benefit: Credit is a percentage (up to 35%) of up to $3,000 for one child ($6,000 for two or more). (Credit is expanding starting in 2026.)

Student Loan Interest Deduction

• Benefit: Deduct up to $2,500 of interest paid on qualified student loans, even if you don’t itemize deductions.

• Eligibility: Subject to income limits; phased out at higher AGI.

• Borrowing Limits: New lifetime borrowing caps for federal loans are established: $100,000 for graduate students (higher for professional programs), $257,500 overall starting with disbursements in 2026.

Education Savings and Tax Breaks

• Savings Bonds: Interest from Series EE or I U.S. savings bonds may be tax-free when used for qualified education expenses, if income is below the annual threshold and bonds meet certain requirements.

What School Costs Are Not Deductible?

• Private K-12 tuition is generally not deductible on your federal return (except through 529s for up to $10,000/year in tuition).

Know Before You Claim

 

Planning Pointers

• Keep all receipts and 1098-T forms for tuition and education expenses.

• Only one credit (AOTC or LLC) can be claimed per student, per year.

• Watch for income limits—credits phase out for high earners.

• Double-check eligibility each year as rules and limits may change.

For more tailored advice, reach out to the professionals at Moss & Yantis CPA. We’re here to help make sure your family gets every tax benefit you deserve as you head back to school!

All information is current as of July 23, 2025, based on IRS and official guidance. For complex or unique tax needs, speak with your CPA or tax advisor to maximize your benefits.