[Old post, relevant info]
Tl;dr
[This information is still 100% relevant for the 2020 tax year. Simply add “2” to each mention of any year. I.e. 2017 becomes 2019, and 2018—>2020]
If you graduated from medical school during 2018, paid any tuition DURING 2018, and have any income for 2018 (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
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 realize 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 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 2018 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 2018
Some medical schools bill for tuition early for the upcoming semester, for example, December 2017 for the 2018 semester. In this case, if you paid the bill in 2017, you CANNOT take the credit for 2018. Any tuition paid must have been made after/on Jan 1, 2018. You should receive a form “1098-T” from your medical school which will list payments actually made in 2018, 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 2018 to see if you are eligible for the LLC.
Note: If you were billed in 2017, but made the payment in 2018 (or your loan payments were credited to your account in 2018), this COUNTS as payments made in 2018.
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 ($67,000 if single, $134,000 if married), you won't qualify.
Married?
If you are married, you must file jointly to qualify. Those of you who file separately and otherwise qualify for the LLC will lose out on up to $2000. So make sure you or your tax preparer understands this before you make the decision to file separately!
Dependent?
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.)
Be Aware
Educate Yourself
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!