IRS Publication 970 is an authoritative publication released by the Internal Revenue Service (IRS). It is designed to offer comprehensive insights into tax advantages associated with education. This publication provides essential information for students and families as they pay for or cover college expenses. This document explains the complexities of tax treatment relating to familiar college funding sources, such as fellowships, scholarships, and reductions in tuition fees.

Moreover, IRS Publication 970 outlines two primary tax credits, the Lifetime Learning Credit and the American Opportunity Tax Credit. These credits help reduce the tax burden for people who want to continue their education.

Additionally, IRS Publication 970 explores the specifics of nine different tax benefits that students and their families can harness to reduce their income tax liability effectively. These benefits include the provisions for deducting the interest payments associated with student loan debt, the tax-exempt handling of forgiven student loan debt, and the deduction of tuition costs and fees. This publication also guides maximizing tax advantages through contributions to tax-advantaged Coverdell Education Savings Accounts (ESAs) and participating in eligible tuition programs.

The scope of IRS Publication 970 extends further to include numerous incentives related to educational expenditure. This includes the opportunity for savings bonds when the proceeds are allocated toward educational expenses. Furthermore, the publication provides information on penalty-free withdrawals or distributions from retirement savings accounts designated for educational expenses and the option to deduct education costs from business income, offering an advantage for entrepreneurs.

Scholarship and Fellowship Grants

A scholarship usually refers to the amount of money provided to help a student, whether they are an undergraduate or graduate, in their educational pursuits at an institution. A fellowship grant generally represents a payment to support an individual in their studies and research work.

The amount of a scholarship or fellowship grant covers the following.

• The value of accommodations and contributed services, such as meals, lodging, laundry, and similar services received by recipients as part of the grant.
• The amount covers matriculation, tuition, and additional fees, paid or waived for the students to facilitate their studies and research.
• Any amount received as a family allowance is also part of the scholarship or fellowship grant.

Other Relevant Forms

Form 1098-T

Individuals utilizing education credits and deductions must also possess Form 1098-T, the Tuition Statement, containing the EIN (employer identification number) of the educational institution.

The form includes only contributions made or deemed received for eligible education costs throughout the tax year. Usually, the student should get this form from the eligible educational institution before January 31, 2023. However, the amount on Form 1098-T may differ from the actual payments. This form includes other relevant institution details like previous years' changes, scholarship or grant amounts, refunds, reimbursements, and enrollment status. The institution may seek a completed Form W-9S or a similar statement to obtain the student's information.

To be eligible for claiming the American Opportunity Tax Credit Form, a taxpayer must have received Form 1098-T from an eligible educational institution, whether it's based in the US or abroad.

Form 8863

Additionally, taxpayers are required to file IRS Form 8863 to request Lifetime Learning Credits and American Opportunity Tax Credits. Under certain circumstances, a student might be eligible for credits even without Form 1098-T. This can be the case if there are rules that prevent the educational institution from giving the student the form. For instance, if the student meets the requirements for nonresident alien status, has paid all of their approved educational costs through scholarships, has entered into a formal billing agreement, or is participating in nonacademic credit courses. You won't be able to claim the American Opportunity Credit on either your initial or updated 2022 return if you don't have a TIN by the deadline for submitting your return for 2022, including extensions. Furthermore, if a student doesn't get a TIN before the return deadline, extensions included, the American Opportunity Credit won't be available on either your first or updated 2022 return.

The Federal Budget and IRS Publication 970

In tax policy circles, specific-purpose tax benefits are sometimes referred to as "tax expenditures." IRS Publication 970 provides in-depth detail of these tax expenditures authorized by Congress to encourage education and training among Americans.

Tax deductions and credits for post-secondary educational costs led to an approximate reduction of $9.3 billion in federal tax revenue in 2022. However, this amount is projected to rise significantly to $14.6 billion in 2023. Student loan interest deductions are another important tax policy relating to education that reduced taxes by approximately $2.1 billion in 2022 and is expected to reduce revenue by an additional $2.3 billion in 2023.

IRS Form 970 Updates

During the 2017 tax-form deliberations by Congress, the tax obligations of American college students were widely discussed. Initial versions of this legislation contemplated removing tax-free tuition waivers for many students. This posted an important concern for graduate students who often depend on these waivers for education access. Following the student protests, the legislation was amended to maintain the tax-free status of tuition waivers. Subsequently, the Bipartisan Budget Act of February 9, 2018, added several benefits to the tax law and introduced some new ones. IRS Publication 970 undergoes regular updates to reflect any tax code or regulations amendments.