The best source of information for educational tax benefits (and potential liabilities) is official IRS publications. You can download these directly from www.irs.ustreas.gov/prod/forms_pubs/index.html.or click on the links below.

Publication #525 -  Taxable and Nontaxable Income (see page 32)

Publication #970 - Tax Benefits for Higher Education 

Form 8863 and Instructions (PDF), Education Credits (Hope and Lifetime Learning Credits)

Tax Topic 605, Education Credits

Frequently Asked Questions and Answers from the IRS, Education Tax Credits

The National Association of Financial Aid Administrators also offers an overview of the Hope Scholarship and Lifetime Learning tax credits at this link-
http://www.nasfaa.org/annualpubs/taxbenefitsguide.html.

The following is a summary of the currently available benefits and tax issues.  While we attempt to keep this information updated, it is not presumed to be as reliable or complete as information provided by the IRS.

Hope Scholarship

• A non-refundable tax credit subtracted from tax liability
• Student must be in first 2 years of undergraduate study enrolled at least half-time
• Qualified expense is tuition/required fees less scholarships, grants, and tax-free educational assistance
• Cannot claim expense paid by withdrawal from Education IRA in same year on same student
• The exact amount of the Hope credit depends on the family's income, the amount of qualified tuition and fees paid, and the amount of gift aid (scholarships and grants) subtracted from tuition and fees
• This credit is not available to single taxpayers with a Modified Adjusted Gross Income of $55,000 or more and $110,000 for married taxpayers filing jointly.

Lifetime Learning Tax Credit

• A non-refundable tax credit subtracted from tax liability
• Based upon educational expenses for family; up to 20% of $10,000
• The exact amount of the Lifetime Learning credit depends on the family's income, the amount of qualified tuition and fees paid, and the amount of gift aid (scholarships and grants) subtracted from tuition and fees
• Phased out at same income levels as Hope Scholarship
• Can claim Lifetime Learning credit for some family members and Hope Scholarship for others in same tax year

Student Loan Interest Deduction

• Tax deduction for interest paid on all private and government educational loans 
• Maximum deduction is $2,500 per year
• Approximate cut off to claim full deduction

$100,000 AGI for joint filers (phase out at $130,000)
$50,000 AGI for single filers (phase out at $65,000)

(See IRS publication 970 for more information)

Coverdell Education Savings Plan (formerly Educational IRAs) 

• Contributions are not excludable from AGI
• Earnings accumulate tax-free
• Distributions are not taxable if expenses are qualified
• Maximum contribution of $2,000 per year until beneficiary reaches age 18 with income cap of $190,000 AGI for joint filers and $95,000 AGI for single filers
• For higher income levels, the phases out at $220,000 AGI for joint filers and at $110,000 AGI for single filers 
• Interest and tax-free withdrawal must be used or transferred by beneficiary's 30th birthday
• Withdrawals can be used for certain elementary and secondary school expenses
• For more information use this link -   www.savingforcollege.com/coverdell/

Employer Assistance

• Up to $5,250 per year of certain employer-paid educational expenses (tuition, fees, books, supplies, but not room and board) may be excluded from AGI
• Education does not have to be work-related but employer must maintain a qualified program
• Deductions cannot be claimed for employer-paid expense
• Graduate school expense qualifies

Indiana College Choice Plan (a qualified 529 plan)

• Assists Indiana families in saving for college
• Withdrawals exempt from federal income tax as a qualified 529 plan
• Relatives or others (even non-residents of Indiana) can open account for Indiana resident
• Payroll and monthly ACH deductions from your bank account are available
• Call 1-866-400-7526 for enrollment information or access on-line at www.collegechoiceplan.com/
• More information on 529 plans can be found at www.savingforcollege.com/
• Pay careful attention to administrative fees!
   

Taxability of Scholarships, Grants, and Fellowship Payments(1)

*** Do not rely on this table alone.  Refer to IRS Publications 970 and 525.

(1) Does not include payments for past, present, or future service.
(2) Payments used for any expenses indicated in this column are tax free only
     if the  terms of the scholarship or fellowship do not prohibit the expense.
(3) If required of all students in the course.