Tax Credits for Higher Education
An individual taxpayer may claim an income tax credit for the American Opportunity Tax Credit (AOTC) in tax years beginning before 2018, and the Lifetime Learning credit for higher education expenses at accredited post-secondary educational institutions paid for themselves, their spouses, and their dependents. The AOTC is available for qualified expenses of the first four years of undergraduate education; and the Lifetime Learning credit is available for qualified expenses of any post-high school education at “eligible educational institutions.” The AOTC can’t be claimed along with the Lifetime Learning credit in the same tax year for expenses of any one student and the credits phase out for higher-income taxpayers.
An “eligible student” means, with respect to any academic period, a student who— meets the requirements of section 484(a)(1) of the Higher Education Act of 1965 (20 U.S.C. 1091(a)(1)), and is carrying at least 1/2 the normal full-time workload for the course of study the student is pursuing.
Qualified expenses include tuition, fees, and course materials required for enrollment or attendance at an eligible educational institution.
State Specific: NJ
College and Tuition Assistance
For Tax Year 2022 and forward, The New Jersey College Affordability Act allows for three Income Tax deductions for those who file tax returns showing gross income of $200,000 or less. Deductions include contributions to an NJBEST 529 savings plan, payments made for an NJCLASS student loan, and tuition costs for New Jersey colleges and universities.
New Jersey Better Educational Savings Trust (NJBEST)
You can deduct up to $10,000 of contributions made during the year into an NJBEST account.
Example: You contribute $1,000 per month, beginning in January. If your gross income is $200,000 or less, you can deduct the maximum amount of $10,000.
The Higher Education Student Assistance Authority (HESAA) may offer additional NJBEST 529 College Savings Plan benefits to New Jersey residents.
New Jersey College Loans to Assist State Students (NJCLASS)
You can deduct up to $2,500 of principal and interest paid on student loans during the year under NJCLASS if your gross income is $200,000 or less.
New Jersey Higher Education Institution Tuition Costs
If you, your spouse, or your dependent enroll in and attend a New Jersey institution of higher education, you can deduct up to $10,000 for tuition costs.