If you graduated from medical school during 2017, paid any tuition DURING 2017, and have any income for 2017 (e.g. your half-year’s intern salary), then you likely qualify for a tax break called the Lifetime Learning Credit (LLC), which is worth up to $2000. It doesn't matter WHO paid the tuition (e.g. you, your family, loans, etc). Don’t miss this!
Tax Breaks for Education
Brice's Question about Tax Breaks
Most interns/PGY-1s are probably filing taxes for the first time. Whether you are preparing them yourself (which we encourage!) or hiring someone to prepare them for you, you need to be familiar with all aspects of your tax return and be aware of the situations and rules which apply to you.
We recently had a conversation with our friend Brice (shout out to Brice for reaching out to us. We love questions!) about tax breaks associated with paying tuition. We realized that many new MDs may not be familiar with or otherwise miss the fact that they are eligible for certain tax breaks related to their medical school tuition. Here are three of the most commonly used tax breaks for education.
1) The American Opportunity Credit (AOC). This only applies to undergraduate expenses. We mention it because some people spend a lot of time trying figure out if they are eligible. So ignore this. It’s a distraction.
2) A deduction for tuition and fees. This tax break expired in 2016. However, as of last week, it was retroactively reinstated for 2017, and this is causing problems for some people who had already filed their taxes! Regardless, this deduction is less beneficial than the LLC, so you can likely ignore this too.
3) The Lifetime Learning Credit. This is basically “cash back” on your 2017 taxes. The maximum benefit is $2000, based on tuition payments of up to $10,000. This is the tax break you want to research, and ensure you get it if eligible.
Conditions and Restrictions on Getting the Lifetime Learning Credit
Tuition must have been paid in 2017
Some medical schools bill for tuition early for the upcoming semester, for example, December 2016 for the 2017 semester. In this case, if you paid the bill in 2016, you CANNOT take the credit for 2017. Any tuition paid must have been made after/on Jan 1, 2017. You should receive a form “1098-T” from your medical school which will list payments actually made in 2017, if any. So make sure your medical school has your current info! But also, we’ve seen medical schools make mistakes. So if you aren’t sure, contact your school’s accounting office and ask for a list of payments made in 2017 to see if you are eligible for the LLC.
Note: If you were billed in 2016, but made the payment in 2017 (or your loan payments were credited to your account in 2017), this COUNTS as payments made in 2017.
Make too much money?
There are income limits, above which you cannot claim the LLC. A typical half-year’s intern’s salary is well below the threshold. But if you have other income which pushes you above the max ($66,000 if single, $132,000 if married), you won't qualify.
If you are married, you must file jointly to qualify
You cannot be claimed as a dependent on another’s return. Rarely (and sometimes incorrectly), recent medical school graduates are still claimed as dependents on their parents return. You cannot claim the LLC in this case.
(Note, this list is just a few of the rules which apply to the LLC.)
Although most tax software will walk you through the process needed to determine LLC eligibility and the amount, it can be confusing, and we’ve seen mistakes. Likewise, we’ve seen professional tax-preparers miss this and/or incorrectly determine eligibility for the LLC. You need to learn enough about the LLC (and all other aspects of your taxes!) to ensure everything is correct.
Here are some additional resources from the IRS, which are more complete and authoritative than our summary blog-post!
This interactive assistant will help you determine if you are eligible for the LLC.
Publication 970 “Tax Benefits for Education” has all of the details on all of the education-related tax breaks. Chapter 3 focuses on the LLC.
Send us an email if you have any questions!