Publication 970 (“Tax Benefits for Education”) is the IRS’s one-stop explainer for how education-related money—tuition payments, scholarships, student loan interest, education savings accounts, employer education help, and certain IRA/bond strategies—can affect your U.S. federal income taxes. It’s designed for people saving for or paying education costs for themselves or (often) a student in their immediate family, and it notes most benefits apply to higher education. The publication is structured into chapters that each cover a specific category (credits, deductions, exclusions, and special programs), plus an appendix comparison table and a glossary to help you match the right terms to the right benefit.
What’s Inside Publication 970
Publication 970 lays out two major education tax credits: the American Opportunity Credit and the Lifetime Learning Credit. It also explains additional benefits including the student loan interest deduction, tax-free treatment of certain canceled student loans, tax-free student loan repayment assistance, Coverdell ESAs, Qualified Tuition Programs (QTPs/529-type plans), an education exception to the 10% additional tax on early IRA distributions, the education savings bond program, employer-provided educational assistance, and a business deduction for qualifying work-related education. The IRS explicitly notes you generally can’t claim more than one of the listed benefits for the same qualifying education expense, which is why planning and allocation of expenses can matter.
Scholarships And Grants: When They’re Tax-Free
Publication 970 explains that scholarships and fellowship grants are tax free (excludable from gross income) only if you are a candidate for a degree at an eligible educational institution. Even then, the tax-free treatment is limited: the scholarship must not exceed qualified education expenses, must not be earmarked for nonqualified costs like room and board, and generally can’t be payment for required services like teaching or research (with certain exceptions listed). It defines “qualified education expenses” for this scholarship exclusion as tuition and required fees plus course-related expenses (like required books, supplies, and equipment), and it specifically says items like room and board, travel, research, clerical help, and non-required equipment don’t qualify for this purpose.
Publication 970 also walks through how to handle scholarships that are partially taxable and provides a worksheet framework (Worksheet 1-1) to separate tax-free and taxable amounts based on qualified expenses and scholarship restrictions. For reporting, it notes that taxable scholarship amounts may need to be reported even if you didn’t receive a Form W‑2, and it describes where scholarship income is typically reported depending on the return type (for example, Form 1040/1040‑SR versus Form 1040‑NR).
Education Credits: Forms And Common Pitfalls
Publication 970 highlights practical filing reminders around education credits, especially the role of Form 1098‑T (Tuition Statement) and substantiating what you actually paid during the tax year. It states that, to be eligible to claim the American Opportunity Credit or Lifetime Learning Credit, the law generally requires the taxpayer (or dependent) to have received Form 1098‑T from an eligible educational institution, with certain exceptions described (for example, situations where the institution isn’t required to furnish the form, and conditions for claiming the credit without it). It also notes that for the American Opportunity Credit you must provide the educational institution’s EIN on Form 8863, and it warns that claiming the American Opportunity Credit when not eligible can lead to a ban for 2 or 10 years depending on conduct.
Student Loan Interest And Loan Forgiveness Highlights
Publication 970 includes a chapter on the student loan interest deduction and provides an annual “What’s New” note that the deduction can be phased out based on modified adjusted gross income (MAGI), listing specific 2024 MAGI ranges and cutoffs. It also states you can’t deduct as student loan interest any interest paid by your employer after March 27, 2020 and before January 1, 2026 under an educational assistance program. On loan forgiveness, it notes that the American Rescue Plan Act modified the treatment of student loan forgiveness for discharges in 2021 through 2025 and points readers to the student loan cancellations chapter for details.
Education Savings, Employer Help, And Work-Related Education
Publication 970 covers education savings tools like Coverdell Education Savings Accounts (ESAs) and Qualified Tuition Programs (QTPs), describing them as programs featuring tax-free earnings when used properly. It also includes employer-provided educational assistance and notes that employer-provided educational assistance benefits include certain payments made after March 27, 2020 and before January 1, 2026 for principal or interest on qualified education loans incurred for your education. For work-related education, it explains a business deduction approach and notes that for 2024, if you claim a business deduction for work-related education and drive your car to and from school, the deductible mileage rate for that purpose is 67 cents per mile.
FAQs
What Is IRS Publication 970 Used For?
It’s used to understand which education-related tax credits, deductions, and exclusions may apply when you’re saving for or paying education costs.
Are Scholarships Always Tax-Free Under Publication 970?
No—Publication 970 says scholarships are tax free only if you meet requirements (such as being a degree candidate) and only to the extent they cover qualified education expenses rather than costs like room and board or service-related payments.
Can I Claim More Than One Education Benefit For The Same Tuition Bill?
Generally no—Publication 970 says you generally can’t claim more than one of its listed benefits for the same qualifying education expense.
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