As you consider your next steps into higher education—whether you’re just finishing high school or switching careers—you’ll want to get as full a picture as possible of how school will impact your finances. Student loans, scholarships, and job income could all be part of that puzzle. But the tax implications are another piece that often go unconsidered!
Talking taxes isn’t quite as exciting as slipping into the kitchen and whipping up a beautiful cake or the perfect homemade pasta. But knowing what to look for when it comes to tax deductions could possibly save you thousands of dollars over the course of your education. And that’s enough to get anyone excited.
Note: As Auguste Escoffier School of Culinary Arts is based in the United States, the information provided here is specific to American students. International students should consult the tax codes of their respective countries. Nothing in this article is intended to be professional tax advice. Always consult a tax advisor regarding your specific situation.
Is College Tuition Tax Deductible?
Beginning in 2002, the IRS introduced a tuition and fees tax deduction for eligible students.1 The deduction was extended and renewed several times over the next two decades, allowing students to deduct up to $4,000 from their taxable income.
Unfortunately, that deduction expired on December 31, 2020, and is not available for the 2021 tax year, meaning that tuition is not tax deductible. But while that particular benefit is no longer an option, there are other ways that students may be able to reduce their tax bill both during and after their time in school.
Student Loan Interest Is Tax Deductible
If you take out student loans to fully or partially cover the cost of your culinary school education, you can deduct the interest you pay on those loans from your taxable income. The maximum amount of this deduction is either $2,500, or the amount of interest you actually paid during the year. For example, if you paid $3,000 in loan interest, you can deduct $2,500 from your taxable income. If you paid $2,000 in loan interest, you can deduct $2,000 from your taxable income.*
The student loan interest deduction only applies to qualifying student loans2, which usually include federal loans and private loans from companies like SoFi or Sallie Mae. It does not cover loans between individuals, like a loan from a parent to their child.
To be eligible for this deduction, your modified adjusted gross income (MAGI) must be less than $70,000 for a single filer, or $140,000 for couples filing jointly. The deduction amount will decrease as MAGI goes up past those thresholds. If you have a MAGI of $85,000 for a single filer or $170,000 for couples filing jointly, you will no longer be eligible for this deduction.**
You May Also Be Eligible for Tax Credits
There are two tax credits that you may be eligible for as you pursue your education: The American Opportunity Tax Credit (ATOC) and the Lifetime Learning Tax Credit (LLC). You can only claim one of these credits in a single tax year, but they can potentially save you thousands at tax time!*
Tax Credits vs. Tax Deductions: What’s the Difference?
- A tax credit is a simple reduction of the income tax you owe. If your federal tax bill is $1,000 and you receive a $1,000 tax credit, your net tax bill will be $0. Some tax credits are refundable. This means you will receive the full amount of the credit even if it’s more than what you owe on your tax bill. So if your federal tax bill is $700 and you receive a $1,000 tax credit, you will receive a $300 tax refund.
- A tax deduction is a reduction in your total taxable income for the year. For example, if you earned $50,000 in income for the year and had $5,000 in tax deductions, you would only have to pay taxes on $45,000 of income.
The American Opportunity Tax Credit (AOTC)
If you’re pursuing an associate degree at Escoffier, you could be eligible for the The American Opportunity Tax Credit (AOTC)3. The AOTC is a credit for education expenses for the first four years of postsecondary education. Students must be working toward a degree and be enrolled at least half-time for at least one academic period (meaning a semester, quarter, or term, depending on how your school breaks up the school year.)
Since this credit is limited to the first four years of higher education, it is usually only available to associate degree or bachelor degree students. If you have already attended four years of postsecondary school, you will not be able to claim the AOTC for your supplementary education.
The maximum annual credit through the AOTC is $2,500 per eligible student. To claim the full credit, your MAGI must not exceed $80,000 for single filers, or $160,000 if married filing jointly. After that, your credit amount will decrease. You cannot claim the credit if your MAGI is over $90,000 for single filers, or $180,000 for joint filers.
This credit is partially refundable. If the credit brings the amount of tax you owe to zero, you can receive a refund of 40% of any remaining amount of the credit (up to $1,000). For example, if your tax bill was $2,000 and you received the full $2,500 tax credit, you would be refunded $200—40% of the remaining $500.
The Lifetime Learning Tax Credit (LLC)
Students enrolled in Escoffier’s diploma programs, or who are pursuing additional credentials after already earning a bachelor’s degree, may be eligible for the Lifetime Learning Tax Credit (LLC).4
This credit is applicable to students in undergraduate, graduate, and professional degree programs at eligible schools. Most accredited schools, like Escoffier, qualify for this credit. But you can check with the IRS for a list of accrediting agencies5 to make sure yours is listed.
To be eligible for the LLC, you have to be enrolled in courses for at least one academic period working toward a degree, earning a recognized education credential, or improving job skills. The credit is equal to 20% of the first $10,000 in tuition expenses you pay per year, up to a maximum credit of $2,000.
To claim the full credit, your MAGI must be $59,000 or less for single filers, or $118,000 or less for couples filing jointly. After that, the amount of credit you receive will be reduced. You cannot claim the credit if your MAGI is over $69,000 for single filers, or $138,000 for joint filers.
This credit can be used every year that a student is enrolled in an eligible institution. It isn’t restricted to four years, like the AOTC. And the student doesn’t have to attend school full-time in order to receive it.
Keep in mind that this credit is also not refundable. So if the credit reduces your tax liability below $0, you will not be able to receive a refund for the overage.
You Have the Right to Minimize Your Tax Liability
Understanding culinary school’s impact on your taxes is an important piece of the overall financial picture you’ll need to consider when making the decision to pursue education. Deductions and credits can be confusing, but you have the right to take every eligible step to minimize your tax bill.
A tax accountant is the right person to ask about your specific circumstances and eligibility. Even if you can’t get one of these credits, someone who specializes in taxes may be able to help to minimize your tax liability and maximize the money you get to keep in your pocket. For questions about paying for culinary school, our Financial Advisors can help. Contact us for more information about tuition, financial aid, and scholarship opportunities!
To learn more about the financial side of education, try these resources next:
- How Much Does Culinary School Cost and How Can You Pay For It?
- Complete Guide to Culinary Scholarships
- How Long Does it Take to Pay Back Student Loan Debt…And Is It Worth It?
*Information may not reflect every student’s experience. Results and outcomes may be based on several factors, such as geographical region or previous experience.
**All numbers are for the 2021 tax year.
1IRS website, Tax Benefits for Education: Information Center
2IRS website, Topic No. 456 Student Loan Interest Deduction
3IRS website, American Opportunity Tax Credit
4IRS website, Lifetime Learning Credit
5Database of Accredited Postsecondary Institutions and Programs