Take advantage of tax benefits for money you spend on education. Both the state of Maine and the federal government offer tax credits and deductions.
Student Loan Repayment Tax Credit for Maine Taxpayers
The Student Loan Repayment Tax Credit (SLTC) replaces the Educational Opportunity Tax Credit (EOTC) – often referred to as Opportunity Maine – for tax years beginning on or after January 1, 2022.
The new SLRTC program provides an annual refundable tax credit of up to $2,500 to eligible Mainers who are repaying student loans and who live and work in Maine. The revised program is available if you obtained an associate, bachelor’s, or graduate degree from any accredited community college, college, or university after December 31, 2007. The program has a lifetime credit cap of $25,000. The Student Loan Repayment Tax Credit Worksheet to claim this tax credit for the 2022 tax year is now available!
There is a phase-out period from the previous EOTC program. If you have unused credit carryover amounts or were eligible for the refundable STEM credit under the EOTC program, you can learn more about the phase out here.
If you are eligible and have not yet done so, you can still claim the EOTC for tax years beginning on or after January 1, 2008, and not later than December 31, 2021.
For more information on this program, including how to apply for the tax credit, visit Maine Revenue Services.
American Opportunity Tax Credit
This federal tax credit is up to $2,500 per student (100% of the first $2,000 of expenses, and 25% of the next $2,000). It is available for the first four years of postsecondary education. To receive it, you must show you paid for qualified education expenses. There is a maximum income limit (currently $90,000 for single/head of household or $180,000 for married filing jointly).
Lifetime Learning Credit
You may be able to claim up to $2,000 for qualified education expenses on your federal tax return with this credit. The number of years you can claim this credit is unlimited for eligible students. There is a maximum income limit (currently $69,000 for single/head of household or $138,000 for married filing jointly).
You cannot claim both the American Opportunity and Lifetime Learning tax credits in the same year. See the IRS comparison for more information about these credits.
Additionally, you can’t claim either federal tax credit for expenses you paid with a 529 account. However, with some planning, you can take a tax credit for a portion you pay from another source (such as income). For example, if your student has a tuition bill of $10,000, you can take a withdrawal of $6,000 from your 529 account, pay the $4,000 remainder of the tuition bill with income, and claim the $2,500 American Opportunity tax credit.
Student Loan Interest Deduction
You may be able to deduct interest you paid on a qualified student loan, reducing your federal taxable income up to $2,500. This deduction has an income limit. This deduction may be taken even if the taxpayer does not itemize.
Tuition and Fees Deduction
You or your parents may be able to deduct qualified education expenses on your federal tax return. This may reduce taxable income up to $4,000.
Determining which credits and deductions you may qualify for can be challenging. Ask an expert if you need help.
For additional information on federal tax credits and deductions, visit the IRS.
This information is not intended as individual tax advice to any person and is provided as general information in connection with FAME’s mission to provide financial education to Maine citizens. Please seek professional advice based on your particular circumstances from an independent tax advisor.