Who Can I Claim as a Dependent on Taxes?
From Tax Guide.
Tax Guide · Arab, Alabama
Education Credits, 1098-T and Student Loan Interest
Tuition can lead to a federal education credit, student loan interest may be deductible, and Alabama offers a deduction for its own 529 plan.
The short answer
What tax breaks are there for college costs and student loans?
There are three main ones: a federal education credit for tuition, a deduction for student loan interest, and, in Alabama, a deduction for contributions to the state's 529 plan.
Each one works differently, and you generally cannot use the same expense for more than one break. Income limits apply to the federal items, and the IRS sets those each year, so we do not list them here.
The paperwork usually arrives early in the year, so knowing what each form means makes the appointment go more smoothly.
Tuition credits
How do the tuition credits work, and what is Form 1098-T?
Form 1098-T is the statement your college sends showing tuition billed or paid, and it is the starting point for claiming a federal education credit.
Two credits are common: the American Opportunity Credit, which is aimed at the first years of college, and the Lifetime Learning Credit, which covers a wider range of courses, including some for job skills. A credit reduces your tax directly, so it is often worth more than a deduction of the same size. Which credit applies, or whether either does, depends on the student's enrollment, the costs paid and your income.
A student who can be claimed as a dependent generally cannot claim the credit on their own return. The parent who claims the student usually takes it, even if the student paid the bill. Our guide on dependents and child-related credits covers who can claim whom.
- Keep the 1098-T, and also your own records of what you paid.
- Scholarships and grants can reduce the costs that qualify.
- Books and required supplies may count under some credits but not others.
- The box amounts on the 1098-T do not always match what you actually paid, so bring receipts.
Student loans
Can I deduct student loan interest?
You may be able to deduct interest you paid on a qualified student loan, even if you do not itemize, up to an annual limit set by the IRS.
Your loan servicer sends Form 1098-E when you paid a certain amount of interest during the year, but you can deduct interest you paid even if you did not receive the form. The deduction is an adjustment to income, so you can take it whether you use the standard deduction or itemize. See our guide on standard deduction or itemizing if you are unsure which fits you.
The deduction phases out at higher incomes, and it is not available to everyone, such as some married people who file separately. It applies to interest, not to the principal you repay. The loan has to be for higher education costs of you, your spouse or a dependent.
Alabama
Does Alabama give a deduction for 529 plan contributions?
Yes, Alabama offers a deduction on the state return for contributions to its own 529 college savings plan.
A 529 plan is an account that grows without tax when the money is used for qualified education costs. The Alabama deduction is for the state's own plan, and the limit and rules are set by the state, so we confirm the current ones. Contributions to another state's plan may be treated differently for Alabama purposes.
Because the federal return does not give a deduction for the contribution, the benefit shows up only on the Alabama return. It is one more reason to bring your 529 statements to your appointment.
| Tax break | Where it appears | Paperwork |
|---|---|---|
| Education credit | Federal return | Form 1098-T and payment records |
| Student loan interest deduction | Federal return | Form 1098-E or servicer statement |
| 529 plan contribution deduction | Alabama return | Plan contribution statement |
General overview. Eligibility depends on your facts.
Common mistakes
What mistakes do people make with education credits?
The most common mistake is claiming the same tuition twice, or claiming a credit that the student or another person is entitled to instead.
Others include using 529 withdrawals for costs that were also used for a credit, forgetting that scholarships reduce eligible costs, and leaving off the credit because the college sent no form. A missing 1098-T can often be replaced through the school. Errors on an education credit are a familiar reason for IRS notices, and you can read about what to do in our guide on received an IRS notice.
If you filed without a credit you now think you qualified for, you may be able to amend. See how to amend a tax return.
How we can help
Need help with education tax breaks?
Our office prepares income tax returns for families and students, and we sort out which education items fit on the federal and Alabama returns.
Bring your 1098-T, 1098-E, tuition receipts and 529 statements. Please do not send Social Security numbers or documents through the website; bring them to the office or call us at 256-586-4635.
We serve Arab and the surrounding area, and you can contact us to ask what to bring.
Answers
Questions about education tax breaks
What is a Form 1098-T?
It is a statement from a college or school showing tuition billed or paid. It helps you claim an education credit, but you should also keep your own payment records.
Can I claim an education credit if I did not get a 1098-T?
Possibly. The school may have missed sending it, and you can ask for a copy. Your receipts and enrollment records still matter.
Who claims the credit if a parent paid the tuition for a dependent student?
Usually the person who claims the student as a dependent claims the credit. Who paid can matter, so we look at the details.
Do I need Form 1098-E to deduct student loan interest?
No. The form is only sent when interest passes a certain amount, and you can deduct interest you paid even without it, if you meet the other rules.
Does Alabama have a deduction for a 529 plan?
Yes, Alabama offers a deduction for contributions to its own 529 plan. The limit and rules are set by the state, so we confirm the current ones.
Can I use the same tuition for a credit and for a tax-free 529 withdrawal?
No. The same expense generally cannot be used for both, so the two need to be coordinated.
Read next
Related reading
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Standard Deduction or Itemizing: Which Is Right?
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Income Tax Services
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