IRS Publication 970

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IRS Publication 970: Tax Benefits for Education

IRS Publication 970 explains federal tax rules and benefits related to education expenses. It is the primary IRS resource for students, families, and educators on how scholarships, grants, tuition reductions and other education-related payments are treated for tax purposes and which tax credits, deductions, and exclusions may apply.

What the publication covers

  • Tax treatment of scholarships, fellowships, grants and tuition reductions.
  • Education tax credits, including the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC).
  • A range of other education-related tax benefits: student loan interest deduction, tax treatment of canceled student loan debt, tuition-and-fees deductions (where applicable), Coverdell Education Savings Accounts (ESAs), qualified tuition programs (commonly called 529 plans), tax-free treatment of certain savings bond proceeds used for education, penalty-free withdrawals from retirement accounts for qualified education expenses under specified rules, and deductibility of business-related education expenses.
  • Rules, eligibility requirements, income phaseouts, and documentation requirements for claiming these benefits.

Key takeaways

  • Most benefits in Publication 970 target higher education (colleges, universities, conservatories, and post-graduate programs), though some apply more broadly.
  • Eligibility for many credits and deductions depends on adjusted gross income (AGI) and phases out above specified income thresholds.
  • Proper documentation—especially Form 1098‑T (Tuition Statement)—is often required to claim education credits and deductions. To claim the AOTC or LLC, taxpayers generally file Form 8863.

Common education tax benefits (summary)

  • American Opportunity Tax Credit (AOTC): A credit that helps offset undergraduate education expenses for eligible students.
  • Lifetime Learning Credit (LLC): A credit available for qualified tuition and related expenses for eligible students; applies more broadly to undergraduate, graduate, and continuing education.
  • Student loan interest deduction: Allows a deduction for interest paid on qualified student loans, subject to income limits.
  • Tax-free treatment of scholarships, grants and certain tuition waivers: Portions used for qualified education expenses are generally excluded from income; amounts used for living expenses may be taxable.
  • Coverdell ESAs and qualified tuition programs (529 plans): Tax-advantaged savings vehicles for education.
  • Tax-free savings bonds and penalty-free retirement withdrawals: Under conditions, proceeds used for education can be tax-favored or withdrawn without penalties.
  • Business expense deduction for qualifying education: Education required for, or related to, a taxpayer’s trade or business may be deductible in certain cases.
  • Treatment of canceled student loan debt: May be excluded from income in specific circumstances.

Documentation and forms

  • Form 1098‑T (Tuition Statement) is commonly issued by educational institutions and includes information needed to claim education credits.
  • Form 8863 is used to claim the AOTC and the LLC.
  • Under some conditions, taxpayers may be able to claim credits even if they did not receive a Form 1098‑T, but they must meet IRS documentation and eligibility rules.

Federal budget impact and policy notes

  • Tax provisions that promote education are considered tax expenditures. These provisions reduce federal revenue: for example, estimates showed post-secondary education credits and deductions reduced 2021 federal revenues by about $9.3 billion and were projected to increase to about $14.6 billion in 2022. The student loan interest deduction reduced revenues by an estimated $2.1 billion in 2021 and about $2.3 billion in 2022.
  • Publication 970 and the underlying tax rules have been subject to legislative debate and occasional changes; provisions such as the tax-free treatment of graduate tuition waivers have been preserved after legislative proposals to change them.

Updates and where to find it

Publication 970 is updated regularly to reflect tax law and regulatory changes. The current and prior editions, along with recent developments, are available on the IRS website.

Bottom line

IRS Publication 970 is the authoritative guide to education-related tax rules. Students, families and tax preparers should consult it (and the relevant IRS forms) to determine eligibility, documentation needs, and how education payments affect taxable income.