Education Related Federal and Wisconsin Tax Deductions and Credits
Federal Student Loan Interest Deduction
Student loan interest is interest you paid during the year on a qualified student loan. You may deduct the lesser of the (1) annual IRS limit or (2) amount of interest you paid during the year. The deduction may be limited depending on your filing status and income. You can claim this tax deduction on Schedule 1 of Form 1040 only if all the following apply: (1) You paid interest during the tax year on a qualified student loan (for yourself, your spouse, or a person that was your dependent at the time the loan was initiated), (2) Your filing status is any status except married filing separately, (3) Your Modified Adjusted Gross Income (MAGI) is less than the annual limit for your filing status, and (4) You, or your spouse if filing jointly, are not claimed as dependent on someone else’s tax return.
*Do not claim a tax deduction for any interest paid from a distribution of earnings 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, visit the IRS website here.
Federal Lifetime Learning Credit (LLC)
The Lifetime Learning Credit (LLC) (up to $2,000 per tax return) is for qualified tuition and related expenses paid for eligible students (you, your spouse, or your dependent) enrolled in an eligible, post-secondary, educational institution for at least one academic period during the tax year. This credit can help pay for undergraduate, graduate, and professional degree courses — including courses to acquire or improve job skills. There is no limit on the number of years you can claim the credit. However, the credit amount may be reduced depending on your filing status and income.
For more information, visit the IRS website here.
Federal American Opportunity Tax Credit (AOTC)
The American Opportunity Tax Credit (AOTC) is a credit for qualified education expenses paid for an eligible student for the first four years of higher education. An eligible student is one pursuing a post-secondary degree and enrolled at least half time for at least one academic period during the tax year. The annual maximum credit is $2,500 per eligible student, allocated between a nonrefundable portion ($1,500) and refundable portion ($1,000).
For more information, visit the IRS website here.
Wisconsin Tuition & Fees Subtraction
The subtraction is available to those that pay for tuition, required books, and mandatory student fees for themself, their spouse, or their dependent. Tuition and fees must have been paid to a Wisconsin or Minnesota university, college, or technical college. Qualified tuition and fees do NOT include those paid with tax-free funds like tax-free scholarships, Pell grants, amounts reimbursed by an employer, and amounts withdrawn from an Edvest or Tomorrow’s Scholar college savings plan. The subtraction is limited to an annual amount per student set by the WDOR each tax year.
For more information, visit the WDOR website here.
Wisconsin Private School Tuition Subtraction
A subtraction may be claimed for tuition paid in the taxable year to send your dependent child to a private school. The subtraction is limited to an annual amount per student set by the WDOR each tax year. Qualified private school tuition does NOT include private school tuition paid with money from an Edvest or Tomorrow’s Scholar college savings account. Schedule PS, Private School Tuition, must be included with your Wisconsin income tax return.
For more information, visit the WDOR website here.
Wisconsin Subtraction for Contributions to Edvest or Tomorrow’s Scholar Account
You may be able to subtract the amount you contributed to a Wisconsin state-sponsored college savings account (Edvest or Tomorrow’s Scholar) if you are the owner of the account or were authorized by the owner of the account to make contributions to the account. The subtraction is limited to an annual amount per student set by the WDOR each tax year. For amounts rolled over during the tax year, from another state’s qualified sec. 529 plan to a Wisconsin college savings account, the subtraction applies to the amount of principal rolled over. It does not apply to any investment earnings in the account. Complete Schedule CS, College Savings Accounts, to determine the amount of your subtraction.
For more information, visit the WDOR website here.