Tax Preparation Help  
Pub. 970, Tax Benefits for Education 2006 Tax Year

Publication 970 - Introductory Material

This is archived information that pertains only to the 2006 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.

Hope and lifetime learning credits. Beginning in 2006, the amount of your Hope or lifetime learning credit is gradually reduced (phased out) if your modified adjusted gross income (MAGI) is between $45,000 and $55,000 ($90,000 and $110,000 if you file a joint return). You cannot claim a credit if your MAGI is $55,000 or more ($110,000 or more if you file a joint return). This is an increase from the 2005 limits of $43,000 and $53,000 ($87,000 and $107,000 if filing a joint return). For more information, see chapters 2 and 3.

Tuition and fees deduction. This deduction, which was scheduled to expire at the end of 2005, has been extended through 2007. For more information, see chapter 6.

Education savings bond program. . Beginning in 2006, the amount of your interest exclusion will be phased out (gradually reduced) if your filing status is married filing jointly or qualifying widow(er) and your modified adjusted gross income (MAGI) is between $94,700 and $124,700. You cannot take the deduction if your MAGI is $124,700 or more. For 2005, the limits that applied to you were $91,850 and $121,850. For all other filing statuses, your interest exclusion is phased out if your MAGI is between $63,100 and $78,100. You cannot take the deduction if your MAGI is $78,100 or more. For 2005, the limits that applied to you were $61,200 and $76,200. For more information, see chapter 10.

Business deduction for work-related education. Beginning in 2006:

  • If you drive your car to and from school and qualify to deduct transportation expenses, the amount you can deduct for miles driven during 2006 is 44½ cents per mile. This is down from 48½ cents per mile at the end of 2005. See chapter 12 for more information.

  • If your adjusted gross income for 2006 is more than $150,500 ($75,250 if you are married filing separately), your itemized deductions may be limited. See chapter 12 and the instructions for line 28 of Schedule A (Form 1040).

Estimated tax. If you have taxable income from any of your education benefits and the payer does not withhold enough income tax, you may need to make estimated tax payments. For more information, see Publication 505, Tax Withholding and Estimated Tax.

Education credits. The education credits have been expanded for students attending an eligible educational institution located in the Gulf Opportunity Zone (GOZ students) for any tax year beginning in 2005 or 2006. For information on the areas that are in the Gulf Opportunity Zone, see Publication 4492. For information about the expanded credits for GOZ students, see Form 8863.

Photographs of missing children. The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.

This publication explains tax benefits that may be available to you if you are saving for or paying education costs for yourself or, in many cases, another student who is a member of your immediate family. Most benefits apply only to higher education.

What is in this publication.   Chapter 1 explains the tax treatment of various types of educational assistance, including scholarships, fellowships, and tuition reductions.

  Two tax credits for which you may be eligible are explained in chapters 2 and 3. These benefits, which reduce the amount of your income tax, are:
  • The Hope credit, and

  • The lifetime learning credit.

  Ten other types of benefits are explained in chapters 4 through 12. With these benefits, you may be able to:
  • Deduct student loan interest,

  • Receive tax-free treatment of a canceled student loan,

  • Receive tax-free student loan repayment assistance,

  • Deduct tuition and fees for education,

  • Establish and contribute to a Coverdell education savings account (ESA), which features tax-free earnings,

  • Participate in a qualified tuition program (QTP), which features tax-free earnings,

  • Take early distributions from any type of individual retirement arrangement (IRA) for education costs without paying the 10% additional tax on early distributions,

  • Cash in savings bonds for education costs without having to pay tax on the interest,

  • Receive tax-free educational benefits from your employer, and

  • Take a business deduction for work-related education.

You generally cannot claim more than one of the benefits described in the lists above for the same qualifying education expense.

Comparison table.   Some of the features of most of these benefits are highlighted in Appendix B, beginning on page 72 of this publication. This general comparison table may guide you in determining which benefits you may be eligible for and which chapters you may want to read.

Analyzing your tax withholding.   After you estimate your education tax benefits for the year, you may be able to reduce the amount of your federal income tax withholding. Also, you may want to recheck your withholding during the year if your personal or financial situation changes. See Publication 919, How Do I Adjust My Tax Withholding, for more information.

Glossary.   In this publication, wherever appropriate, we have tried to use the same or similar terminology when referring to the basic components of each education benefit. Some of the terms used are:
  • Qualified education expenses,

  • Eligible educational institution, and

  • Modified adjusted gross income.

  Even though the same term, such as qualified education expenses, is used to label a basic component of many of the education benefits, the same expenses are not necessarily allowed for each benefit. For example, the cost of room and board is a qualified education expense for the qualified tuition program, but not for the education savings bond program.

  Many of the terms used in the publication are defined under Glossary near the end of the publication. The glossary is not intended to be a substitute for reading the chapter on a particular education benefit, but it will give you an overview of how certain terms are used in discussing the different benefits.

Comments and suggestions.   We welcome your comments about this publication and your suggestions for future editions.

  You can write to us at the following address:


Internal Revenue Service
Individual Forms and Publications Branch
SE:W:CAR:MP:T:I
1111 Constitution Ave. NW, IR-6406
Washington, DC 20224

  We respond to many letters by telephone. Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence.

  You can email us at *[email protected]. (The asterisk must be included in the address.) Please put “Publications Comment” on the subject line. Although we cannot respond individually to each email, we do appreciate your feedback and will consider your comments as we revise our tax products.

Ordering forms and publications.   Visit
www.irs.gov/formspubs to download forms and publications, call 1-800-829-3676, or write to the address below and receive a response within 10 business days after your request is received.


National Distribution Center
P.O. Box 8903
Bloomington, IL 61702-8903

Tax questions.   If you have a tax question, visit
www.irs.gov or call 1-800-829-1040. We cannot answer tax questions sent to either of the above addresses.

Publication

  • 463 Travel, Entertainment, Gift, and Car Expenses

  • 525 Taxable and Nontaxable Income

  • 550 Investment Income and Expenses

  • 553 Highlights of 2006 Tax Changes

  • 590 Individual Retirement Arrangements (IRAs)

Form (and Instructions)

  • 1040
    U.S. Individual Income Tax Return

  • 1040A
    U.S. Individual Income Tax Return

  • 1040EZ
    Income Tax Return for Single and Joint Filers With No Dependents

  • 2106
    Employee Business Expenses

  • 2106-EZ
    Unreimbursed Employee Business Expenses

  • 5329
    Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts

  • 8815
    Exclusion of Interest From Series EE and I U.S. Savings Bonds Issued After 1989

  • 8863
    Education Credits (Hope and Lifetime Learning Credits)

  • Schedule A (Form 1040)
    Itemized Deductions

See chapter 13, How To Get Tax Help, for information about getting these publications and forms.

Previous | Index | Next

Publications Index | 2006 Tax Help Archives | Tax Help Archives Main | Home