Tax deductions for teachers and educators

Tax deductions for teachers and educators

A deduction is an amount you can subtract from your income, which in turn, can lower the amount of taxes you pay for the year. If you’re a teacher or educator, you could qualify for the following deductions.

Educator Expense deduction for K-12 teachers

If you work with K-12 students, you may qualify for an up to $300 Educator Expense deduction for eligible expenses. These expenses include bulletin board materials, school supplies, books, and other materials used in the classroom, computers and computer programs used to help manage the classroom, and even lunch money for those children who forgot theirs.

If you are an employee in the school who is not a teacher, principal, aide, or other educator, you are ineligible for the Educator Expense deduction.

However, if you are self-employed as a tutor, teaching music, etc., you are usually able to deduct your expenses such as mileage, if you drive to your students.

Examples for claiming these deductions

• Terry is a kindergarten teacher in a local elementary school. During the year, Terry spent her own money on school supplies totaling $300 for bulletin board materials, pencils, crayons, printer paper, scissors, glue sticks, note cards, folders, student lunches, prizes for games and other supplies for the students. Terry can claim the full amount—$300—as an Educator Expense deduction on her tax return.
• George and Jean are both teachers and they file a joint return. George teaches high school English and Jean teaches third grade. During the year, George spent $200 on unreimbursed classroom supplies and Jean spent $450 on unreimbursed classroom supplies. George can claim a $200 Educator Expense deduction and Jean is limited to a $300 deduction. The total allowed deduction for George and Jean is $500, even though together, they spent $650. The $300 is a per-person deduction for each individual and any excess from one individual can't be shared with the other individual. Therefore, although George has $100 more he could claim if he had spent more, he cannot claim $100 from his wife’s excess $150 spent.

Student Loan Interest deduction

If you work as an educator and are still paying on your student loans, you may be able to deduct up to $2,500 in student loan interest paid during the year.

Tax credits for teachers and educators

Credits work differently than deductions. Credits reduce taxes dollar for dollar. There are two different types of credits. One type of credit is called nonrefundable, because you can only use the credit to reduce income taxes to zero and if any credit is left, it is generally lost. The other credit is referred to as refundable. You can use the credit to offset any remaining taxes, and if the credit is greater than the taxes, the remaining amount is part of your refund. Teachers and educators may also qualify for specific education-related credits for their and their spouse's or dependent’s education and continuing education.

Lifetime Learning Credit

If you’re working on an advanced degree beyond your undergraduate or bachelor's, you get a credit of 20% of up to $10,000 in eligible expenses. You can also use the credit for any continuing education you pay for to maintain your teaching certificate. The credit is also available for courses you take that are outside of your career focus, such as horseback riding (yes this is a real college course!). The cost of tuition, fees, and required materials, including internet, computers, and software, are eligible expenses for the Lifetime Learning Credit.

The credit can’t exceed $2,000 annually and you can only take when your income is below $90,000 ($180,000 if married, filing jointly). This is a fully nonrefundable credit, meaning that you can only use the credit to offset taxes, the extra will not be added to your refund. Unlike the American Opportunity Credit, the Lifetime Learning Credit is a per tax return credit.

The American Opportunity Credit

This is only available for a full-time student in the first four years of a degree (often referred to as a bachelor's degree) or certificate program, and only if you earn $90,000 a year or less ($180,000 if you’re filing jointly). Teachers generally already have the bachelor's degree (first four years) so they would not qualify for the American Opportunity Credit. This credit is per student on the tax return and is up to $2,500 based on 100% of the first $2,000 spent and 25% of the next $2,000 spent on eligible expenses such as tuition and fees and other required expenses—not room and board. This credit is allowed as 40% refundable (maximum of $1,000), meaning you’ll get the credit added to your refund if you’re getting one—and 60% (maximum of $1,500) nonrefundable, meaning that you can only use the credit to offset taxes, the extra will not be added to your refund.

Examples for claiming these credits

• Lifetime Learning Credit. Michelle is a single mother whose 22-year-old dependent daughter is enrolled in a continuing education program for teaching. Michelle spent $15,000 for the portion of the tuition and fees not covered by scholarships or grants. Michelle is eligible for a Lifetime Learning Credit worth 20% of $10,000, or $2,000.
• American Opportunity Tax Credit. Jerry works as a janitor in the local middle school, and he decided to go back to school and become a teacher. Jerry spent $5,000 for the portion of the tuition and fees not covered by scholarships or grants. He is eligible for an American Opportunity Tax Credit worth the combination of 100% of the first $2,000 and 25% of the next $2,000, or $2,500, altogether. Jerry’s income tax on his return is $1,250 so the nonrefundable portion, $1,500, is not completely used and he will lose the remaining $250. He will also get to claim the $1,000 refundable portion of his credit and this will be added to his refund, since there are no additional taxes after using the nonrefundable portion.

Retirement planning for teachers and educators

Most public schools and employers offer a deferred-compensation type of retirement savings plan such as a 401(k). These plans allow you to contribute up to $22,500, plus $7,500 if you’re 50 or older. In addition, employers can contribute up to $43,500 to the employee’s account. These contributions are tax-free during the time they are made, but you’ll need to pay tax when you withdraw from your account.

Taxes can easily be confusing, and that’s where we come in. Having an expert Tax Pro in your corner is key to understanding all of the credits and deductions you can qualify for, so that you know you’re getting your biggest refund.

About the Author

Jo Willetts, Director of Tax Resources at Jackson Hewitt, has more than 35 years of experience in the tax industry. As an Enrolled Agent, Jo has attained the highest level of certification for a tax professional. She began her career at Jackson Hewitt as a Tax Pro, working her way up to General Manager of a franchise store. In her current role, Jo provides expert knowledge company-wide to ensure that tax information distributed through all Jackson Hewitt channels is current and accurate.

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