What are qualified education expenses?
Published on April 02, 2025
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Qualified education expenses are costs that the IRS allows for tax benefits, such as tax-free withdrawals from 529 savings plans or education tax credits. These expenses must be necessary for a student to attend school, such as tuition, books, and housing.
Can US expats use qualified education expenses to deduct their taxes?
Yes, US citizens living abroad may qualify for tax benefits on education expenses. Two tax credits can help lower tax bills:
- American Opportunity Tax Credit (AOTC) – This credit is for students in their first four years of college. It helps cover tuition, school fees, and even books or course materials. The AOTC can reduce the taxes you owe by up to US$2,500 per student, per year.
But what if you’re going to college outside the US?
The good news: some foreign colleges do qualify for this credit. However, the school must be approved by the US Department of Education for federal student aid programs. Not all international schools make the list—so you’ll need to check if the school is considered “eligible.”
- Lifetime Learning Credit (LLC) – This credit is a little more flexible. It can be used for any level of higher education—college, grad school, or even job training. There’s no limit on how many years you can claim it, and it can help with tuition and fees (though not living costs or books, unless required by the school).
What if the job training or education is outside the US?
Same rule applies here: the school or program must be an “eligible educational institution.” So, if the training happens through a foreign school that’s approved by the US government, you can still claim the credit—even if the job opportunity itself is in another country.
Does qualified education expenses work when I’m living in the US but I send my kid out to another country?
Yes, you might be able to get a tax credit—even if your child is going to school outside the US.
But there are a few important rules:
- The school has to be on an approved list.
The foreign college or university must be officially recognized by the US government. Not every school qualifies. But many well-known universities around the world are on the list. -
You’ll need records, not always a form.
In the US, schools usually give you a tax form called a 1098-T, which shows how much you paid for tuition. Most schools outside the US don’t give out this form. That’s okay—you can still claim the credit, but you’ll need to keep your own proof, like tuition receipts and enrollment documents. -
Only certain expenses count.
You can only claim tuition and school fees. Things like housing, travel, insurance, and food don’t count—even if they’re part of studying abroad. - The student has to qualify.
For example, with the AOTC, your child must be in their first four years of college and enrolled at least half-time (so not just taking a random online class).
What other tax credits are available for US expats studying abroad?
Student Loan Interest Deduction:
Allows taxpayers to deduct up to US$2,500 of interest paid on qualified student loans from their taxable income.
- Eligibility:
- The loan must have been taken out solely to pay qualified education expenses.
- The student must be enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential.
- The deduction is subject to income limitations; for 2024, the deduction begins to phase out for Modified Adjusted Gross Income (MAGI) over US$80,000 (US$165,000 for joint filers) and is eliminated at US$95,000 (US$195,000 for joint filers).
This deduction is available regardless of whether you itemize deductions on your tax return.
Education Savings Bond Program:
Allows taxpayers to exclude from their gross income the interest earned on qualified US savings bonds when the proceeds are used to pay for qualified education expenses.
- Eligibility:
- The bonds must be Series EE or Series I savings bonds issued after 1989.
- The bond owner must be at least 24 years old before the bond’s issue date.
- The proceeds must be used to pay for tuition and fees required for enrollment or attendance at an eligible educational institution.
- The exclusion is subject to income limitations; for 2024, the exclusion begins to phase out for MAGI over US$96,800 (US$145,200 for joint filers) and is eliminated at US$111,800 (US$175,200 for joint filers).
529 Plans (Qualified Tuition Programs):
This is designed to encourage saving for future education costs. Contributions are made with after-tax dollars, but earnings grow tax-free, and withdrawals for qualified education expenses are also tax-free.
- Qualified Expenses:
- Tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution.
- Expenses for special needs services in the case of a special needs beneficiary.
- Room and board, subject to certain conditions, for students enrolled at least half-time.
Some foreign institutions qualify as eligible educational institutions for 529 plan purposes. It’s best to verify the institution’s eligibility before making withdrawals.
Why use the IRS Streamlined Tax Amnesty Program?
It’s for American citizens that didn’t know they had to file US tax returns each year, and have therefore fallen behind. Some more than 30 years! With the IRS Streamlined Procedure, say goodbye to overdue tax returns, late fees, and penalties.
Connect with over 10,000+ expats today!
Embarking on an international journey shouldn’t mean navigating the complex world of US taxation alone. If you’re living and working abroad, our friendly, supportive Expat Tax Online Help Facebook group is here to assist. We’ve designed a community that serves as a comprehensive guide and resource platform tailored for US expats.
Which education expenses are NOT qualified?
Not all school-related costs count as qualified education expenses. If you withdraw money for any of these, it will be considered a non-qualified expense, meaning you’ll have to pay taxes and possibly a penalty:
- Transportation & Travel – Plane tickets, gas, or other travel costs to and from school.
- Health Insurance & Medical Costs – Even if the school requires insurance, it is not considered a qualified expense.
- Extracurricular Activities & Sports – Costs for joining clubs, teams, or activities that are not part of required coursework.
- Non-Credit Courses – Classes that do not earn college credit, unless required for a degree program.
- Personal & Family Expenses – Things like dorm room decorations, clothing, or other personal items.
What education expenses can be covered by a 529 savings plan?
A 529 savings plan is a special account that helps families save for education. The money grows tax-free and can be used for specific education expenses, including:
- Tuition and Fees – The cost of attending a college, university, or other eligible school.
- Books and Supplies – Textbooks, notebooks, and other materials required for classes.
- Computers and Software – A laptop, educational software, or internet service if needed for schoolwork.
- Room and Board – Housing and meals for students enrolled at least half-time. If living off-campus, the amount used must be within the school’s stated housing costs.
- Special Needs Equipment – Tools or services required for students with disabilities.
- K-12 Tuition – Up to US$10,000 per year can be used for private or religious elementary and high school tuition.
- Apprenticeship Costs – Fees, supplies, and tools for registered apprenticeship programs.
- Student Loan Repayment – Up to US$10,000 can be used to pay off student loans for the beneficiary or their siblings.
How do I calculate qualified education expenses?
To figure out how much of your education costs qualify for tax benefits:
- Add Up Eligible Expenses – Include tuition, fees, and materials required for classes. If using a 529 plan, also include room and board, a computer, and other necessary costs.
- Subtract Non-Qualified Expenses – Expenses like transportation, health insurance, and personal items do not count.
- Deduct Scholarships and Grants – If you received financial aid that does not need to be repaid, subtract it from your total education expenses.
- Check the Limits – Each tax credit or savings plan has rules on how much can be used for education each year.
What happens if I use education funds for non-qualified expenses?
If you use money from a 529 plan or other education savings for something that is not considered a qualified education expense, you may face financial penalties.
The portion of the withdrawal that comes from earnings (not the original money you contributed) will be taxed as income, and you may also have to pay an extra 10% penalty.
However, there are some exceptions where the 10% penalty does not apply. These include:
- If the student gets a scholarship that covers their tuition.
- If the student attends a US military academy (such as West Point).
- If the student becomes disabled or passes away.
If none of these situations apply and you spend the money on non-educational expenses, you will have to pay both taxes and the penalty when filing your taxes.
What should I do with unused education savings?
If you have leftover money, you have a few options to make sure it doesn’t go to waste:
- Use It for Another Student – You can transfer the funds to a sibling, cousin, or even yourself if they still have education expenses.
- Roll It Into a Roth IRA – If the 529 plan has been open for at least 15 years, up to US$35,000 can be moved into a Roth IRA for retirement savings (starting in 2024). Get specialist international US tax advice before investing into a Traditional or Roth IRA.
- Pay Off Student Loans – You can use up to US$10,000 to help pay off student loan debt for the original student or their siblings.
- Withdraw It for Other Uses – You can take out the money for anything, but you will have to pay taxes and a 10% penalty on the earnings portion.
If you don’t need the money right away, you can also keep it in the account in case the student pursues graduate school or another degree later.
What counts as a qualified higher education expense?
A qualified higher education expense is a necessary cost for college or university that education savings plans or tax credits may cover. These expenses include:
- Tuition and Fees – The cost of attending an accredited school.
- Books and Supplies – Any materials required for your courses.
- Room and Board – Housing and meal costs, but only up to the school’s estimated cost for on-campus students.
- Computers and Internet – If required for coursework, computers and internet services may be considered eligible expenses.
- Student Activity Fees – If the fees are required for enrollment, they may qualify.
- Student Loan Repayments – Certain tax benefits apply to repaying loans for past education expenses.
To check if your school qualifies, it must be an accredited post-secondary institution, which means it is officially recognized for higher education.
Schools outside the US may also qualify if they participate in the US Department of Education’s student aid programs.
How do qualified education expenses affect my taxes?
Using education expenses wisely can help reduce your taxes in different ways:
- Education Tax Credits – The AOTC and LLC can lower the amount of taxes you owe when paying for school.
- Student Loan Interest Deduction – If you are repaying student loans, you can deduct part of the interest from your taxable income.
- 529 Plan Withdrawals – If used for qualified education expenses, money from 529 savings plans can be withdrawn tax-free.
- State Tax Benefits – Some states offer tax deductions or credits if you contribute to a 529 savings plan.
- Tax-Free Scholarships and Grants – Scholarships and grants usually do not count as taxable income if used for qualified expenses.
To claim these benefits, you may need to file Form 1098-T from your school or Form 8863 to report education tax credits.
Keeping records of your tuition payments and related expenses will help when filing taxes. However, if you’re unsure what applies to your situation, consider speaking with a tax professional who understands US expat tax rules.
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