You may have to pay taxes on money you received from a qualified education program. The amount you pay in taxes depends on how you used the money.
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If you used money from a qualified education program to pay for your education expenses, you may be able to deduct a portion of the amount you paid. This deduction is available for both undergraduate and graduate level education expenses. To be eligible, you must have used the money for tuition, fees, books, supplies, or equipment required for your course of study. You can deduct up to $4,000 of these expenses each year.
What is a Qualified Education Program?
A Qualified Education Program is a program that prepares students for enrollment in an eligible postsecondary educational institution, or for employment in a recognized occupation. To receive federal student aid, such as the Pell Grant, a student must be enrolled in a Qualified Education Program.
There are many different types ofQualified Education Programs. Some examples include:
-High school diploma or equivalent program
-GED® preparation program
-Home schooling program leading to a high school diploma or equivalent
-Postsecondary Career and Technical Education program
-Bachelor’s degree program
-Associate’s degree program
-Master’s degree or doctorate degree program
How to Use the Money from a Qualified Education Program
You may have money in a qualified education program, such as a 529 plan, that you can use for qualifying education expenses. You can use the money from the account to pay for:
· Tuition and fees
· Room and board
· Books and supplies
· Equipment needed for coursework
· Some other expenses, such as special services for students with disabilities
If you’re not sure whether an expense qualifies, you can ask the school or your financial advisor. With some programs, you may be able to withdraw money tax-free.
What if You Have Already Used the Money from a Qualified Education Program?
If you have already used the money from a Qualified Education Program, you may still be able to get relief. You can file a claim with the Department of Education to have your debt discharged. You will need to provide documentation that shows you used the money for a Qualified Education Program.
If you used money from a qualified education program to pay for your qualifying educational expenses, you may be able to claim a tax credit. The credit can be worth up to $2,500 per student, and it can help offset the cost of tuition, fees, and other educational expenses. To claim the credit, you must file a federal income tax return and include Form 8863 with your return.