post secondary education expenses

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• Qualified Higher Education Expense
• Understanding QHEEs

Special Considerations

Qualified higher education expenses: what they are, how they work.

Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.

Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate.

What Is a Qualified Higher Education Expense (QHEE)?

The term qualified higher education expense (QHEE) refers to money paid by an individual for expenses like tuition, books, fees, and supplies to attend a college, university, or other post-secondary institution. These expenses can be paid by a student, spouse, parent(s), or another party such as a friend or another relative. The Internal Revenue Service (IRS) provides individuals with tax incentives with respect to qualified higher education expenses.

Key Takeaways

• A qualified higher education expense is any money paid by an individual for expenses required to attend a college, university, or other post-secondary institution.
• QHEEs include tuition, books, fees, and supplies such as laptops and computers, but expenses like insurance and health fees are not eligible.
• Taxpayers may claim QHEEs under the tuition and fees deduction by using Form 8917 with their completed tax return.
• Filers may apply for the American Opportunity Tax Credit and the Lifetime Learning Credit as an alternative.

Understanding Qualified Higher Education Expenses (QHEEs)

Qualified higher education expenses are any amounts paid to cover the enrollment of a student at an accredited post-secondary institution. Expenses covered under this category include tuition, books, materials, supplies—including laptops or notebooks—and any other related expenses such as student activity fees. These costs can be paid by cash, check , credit card , or money from a loan.

QHEEs must be paid directly by the student themselves, their spouse, parents, another relative, or friend in order to qualify. These fees may or may not be paid directly to an eligible post-secondary institution. Eligible schools include private, public, for-profit, and nonprofit institutions. All schools send out a Form 1098 -T—Tuition Statement for QHEEs to the student for tax purposes.

As mentioned above, QHEEs may provide individuals with a tax break in one of three possible ways. These include:

• Tax-free accounts such as a 529 Plan or Roth individual retirement account (IRA) when distributions are used to pay QHEEs
• Exempting early IRA withdrawals prior to age 59 ½ from the 10% early withdrawal penalty
• QHEEs deductions on annual tax returns

These tax breaks help reduce the financial burden of attending a college or university and are provided on expenses paid during semesters, trimesters, quarters, or summer school during the tax year or for the first three months of the next tax year.

As noted above, qualified higher education expenses are defined as tuition, fees, books, supplies, and equipment needed to enroll or attend a level of education beyond high school. These expenses are important because they can determine whether or not you can exclude the interest off of a qualified savings bond from your taxable income . Expenses that do not qualify include insurance, medical expenses, student health fees, transportation, personal living expenses, or fees relating to sports activities.

Taxpayers may claim QHEEs for reimbursement under the American Opportunity Tax Credit (AOTC) or the Lifetime Learning Credit (LLC). The AOTC is capped at $2,500 per student, while the Lifetime Learning Credit is limited to $2,000 per tax return. Also note that the LLC is only available to taxpayers with a modified adjusted gross income (MAGI) of $80,000 or less, or $160,000 or less for married couples filing jointly.

You can use Form 8863—Education Credits to apply for both the American Opportunity Tax Credit and the Lifetime Learning Credit.

Filers can use Form 8863—Education Credits to apply for both credits. It's important to note, however, that you can’t take more than one type of credit for the same student and the same expenses. So, you can't take the AOTC andthe LLC for the same student in the same tax year.

Internal Revenue Service. " Tax Benefits for Education: Information Center ."

Internal Revenue Service. " About Form 8917, Tuition and Fees Deduction ."

Internal Revenue Service. “ Education Credits—AOTC and LLC .” 

Internal Revenue Service. " Qualified Education Expenses ."

Internal Revenue Service. " About Form 1098-T, Tuition Statement ."

Internal Revenue Service. " Publication 970, Tax Benefits for Education ."

• Internal Revenue Service. " American Opportunity Tax Credit ."

Internal Revenue Service. " Lifetime Learning Credit ."

Internal Revenue Service. " IRS Provides Tax Inflation Adjustments for Tax Year 2023 ."

Internal Revenue Service. " About Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits) ."

Internal Revenue Service. " Education Benefits—No Double Benefits Allowed ."

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529 Qualified Expenses: What Can You Use 529 Money for?

By Martha Kortiak Mert

July 27, 2023

A 529 plan is a powerful tool that parents and family members can use to save for a child’s education. Contributing to a 529 plan offers tax advantages when the money in the account is used for qualified education expenses. However, there are many 529 plan rules, specifically for 529 qualified expenses. 

What are 529 eligible expenses, and how do you ensure you abide by 529 account rules? Today, we’ll cover an updated list of qualified education expenses, examples of non -qualified expenses , and what to do if you spend funds on a non-qualified expense. 

Let’s get started!

What you can pay for with a 529 plan

First off, let’s dive into the qualified expenses of a 529 plan.

Money invested in a 529 college savings plan grows tax-deferred, and qualified distributions are tax-free. Families may also be eligible for a state income tax deduction or credit for 529 plan contributions, depending on where they live (more on that in a minute, though).

Qualified higher education expenses include costs required for the enrollment or attendance at a college, university or other eligible post-secondary educational institution . The definition of qualified higher education expenses (for 529 plan purposes) also includes up to $10,000 per year in tuition for K-12 schools and up to $10,000 in student loan repayments.

Here is a list of common educational expenses and their qualification status:

It’s worth noting the rules for some of these expenses are a bit more complicated than others. 

Let’s break down each expense.

529 Qualified Expenses

These expenses are usually considered qualified education expenses for 529 plan funds, with a few exceptions. 

Tuition and fees

The funds you accumulate in a 529 plan can be used to pay the full amount of your tuition and fees for:

• College 
• Vocational and trade school
• Public, private, or parochial elementary and secondary school

Attendance does not necessarily need to be physical. You can also use a 529 plan to pay for online college courses. 

As long as the college you’re enrolling in is an eligible institution (which means that the institution is eligible for Title IV federal student aid), you can use a 529 plan to pay for online tuition and fees .

But a 529 plan isn’t limited to just college or trade school tuition fees. 

Thanks to the Tax Cuts and Jobs Act of 2017, families can also use a 529 plan to pay for up to $10,000 worth of tuition expenses per year at an elementary or secondary school. This includes public, private, and parochial schools.

Books and supplies

If books and supplies are required to participate in a class, the full cost of those books and supplies is considered a qualified expense. This may include course textbooks, lab materials, safety equipment, or anything else mandatory for your coursework.

By contrast, you can’t claim books and supplies that aren’t required. 

For example, let’s say you’re taking a marine biology class, and you decide you’d like to do some additional reading on whales. Unfortunately, if the extra books you’d like to buy aren’t on the class reading list, you won’t be able to use a 529 plan to pay for them.

Computers, software, and internet access

You can use your 529 plan to purchase a computer, “peripheral equipment” (like a mouse or speakers), computer software, or internet access. 

According to the Internal Revenue Service (IRS), computers and internet access count as a qualified education expense as long as the beneficiary primarily uses that hardware (or internet access) while enrolled in an eligible institution.

It’s important to note the IRS specifically states computer software that has nothing to do with your studies doesn’t count as a qualified expense. That means computer games, sports software, or any apps related to a hobby can’t be paid for using a 529 plan. 

Room and board

You can use a 529 plan to pay for qualified room and board expenses like rent, other housing costs, and meal plans. This applies to on-campus and off-campus room and board as long as you incurred the costs while the beneficiary was enrolled at school. 

That being said, there are a couple of extra rules you’ve got to remember.

First, you can use a 529 plan to pay for off-campus and non university-managed accommodation as long as the beneficiary is enrolled in an eligible college program on at least a half-time basis. That student must also be studying towards a degree, certificate, or another recognized credential.

Additionally, off-campus students are limited to the allowance reported by the college in its “cost of attendance” figures. Any amount above the allowance is considered a non-qualified 529 plan expense. 

Studying abroad? Room and board costs incurred for abroad programs count as long as it’s approved for credit by your home college or university. 

Rent incurred during the summer months is also considered qualified when the student is enrolled at least half-time.

Keep in mind that you can’t use prepaid tuition plans like the Private College 529 Plan to pay for room and board.

That means if your family is using a prepaid tuition plan, you might want to think about setting up a 529 college savings plan so that you can save for extra expenses like room and board.

Special needs equipment

Special needs equipment refers to services necessary for students with disabilities or other special needs to attend college or university. If you genuinely require special needs equipment to enroll and participate in a course at an eligible institution, you can meet these costs with your 529 plan.

Families with special needs may also consider using a 529 ABLE account to save for college and other education expenses.

Student loans 

529 plans don’t have any time limits. If you have leftover money in your 529 college savings plan after you graduate, you can use that money to pay off all or part of your student loan debt.

This change was introduced as part of the 2019 SECURE Act , which applies to all 529 plan distributions made after December 31, 2018.

But again, there’s a caveat: the law only allows you to pay off a lifetime limit of $10,000 in qualified student loan repayments using your 529 plan. If you owe more than $10,000 in student loans, you can only use your 529 plan to pay for that first $10,000.

529 non-qualified expenses

The next set of expenses are usually considered non-qualified , except under certain circumstances. 

Transportation and travel costs

Transportation and travel costs like gas and transit passes are generally not considered qualified 529 plan expenses.

You cannot use a 529 plan to buy or rent a car, maintain a vehicle, or pay for other travel costs. If you use a 529 distribution to pay for this type of expense, those distributions are considered non-qualified. 

An exception to this rule may be if your college charges a travel or transportation cost as part of a comprehensive tuition fee, or if that fee is identified as being required for enrollment or attendance.

Health insurance

Your college might require students to have health insurance, but you can’t use a 529 to pay for health insurance . If your college requires it, you’ll typically get a waiver on that requirement if you’re covered under your parent’s health insurance plan.

Again, there is an exception to this rule. If your institution charges health insurance as part of a comprehensive tuition fee (or the fee is required for enrollment or attendance), the cost of your health insurance may count as a qualified 529 plan expense.

College application and testing fees

Any costs incurred before a student’s admission to a college or university, such as college application and testing fees , are not considered qualified expenses. 

Although these costs are required for admission, they are not required for enrollment or attendance.

If 529 plan funds are used to pay for any pre-enrollment fees, it will be considered a non-qualified distribution .

How to calculate 529 plan qualified expenses

The maximum amount you can withdraw tax-free from a 529 plan is the total amount of higher education expenses paid during the year, minus any amount used to generate other federal tax benefits.

Parents who use 529 plans to pay for college may be eligible for additional tax savings with the American Opportunity Tax Credit (AOTC) or Lifetime Learning Tax Credit (LLTC). However, these federal education tax credits are only available for families who meet income requirements.

The AOTC offers a 100% credit for the first $2,000 used to pay for education expenses and 25% for the next $2,000 used, for a maximum credit of $2,500 if you spend $4,000 on qualified expenses.

Money in a 529 plan can only be withdrawn tax-free when used for qualified expenses not covered by payments that generated the AOTC. So, in this scenario, the taxpayer would subtract $4,000 from the qualified educational expenses they paid when determining how much they should withdraw from their 529 plan.

The credit does phase out at higher incomes, so some families may get a smaller credit or not be eligible at all. An accountant or tax advisor may be able to provide more guidance on your specific situation.

For an expense to be qualified, you must withdraw money from the 529 plan in the year you incurred the expense. You can’t incur an expense in one year and withdraw from the 529 plan in a different year.

What Happens if the Account Beneficiary Doesn’t Go to College?

If you open a 529 plan for someone who decides not to go to college, you have a few options.

One is to simply take the money out and use it for non-educational expenses. However, you’ll incur penalties (more on those later). 

Another option is to change the beneficiary of the account. For example, a parent with two children could change the account beneficiary to their other child and use the money for their benefit.

Changing the beneficiary won’t have any tax implications as long as the new beneficiary is a family member of the account owner, the owner themselves, or a grandchild. Most 529 plans allow beneficiary changes at any time by completing a form found on their website.

Passage of the SECURE 2.0 act in 2022 is creating a new option for 529 account holders. Starting in 2024, leftover funds in a 529 plan can be rolled over tax and penalty-free to a Roth IRA in the beneficiary’s name. There are several limitations to be aware of, including a cap on the total amount that can be rolled over and annual contribution limits.

Other options include paying off student loans or saving the money for graduate school down the line.

What Happens if You Use a 529 Plan for Non-Qualified Expenses?

You can withdraw funds from your 529 plan at any time, for any reason, but don’t forget: if you withdraw money for non-qualified expenses , you will incur income taxes on the earnings portion of the distribution. You also have to pay an additional 10% penalty on those earnings.

States can also impose additional penalties. 

For example, California adds a 2.5% tax penalty to the 10% federal tax penalty. States that offer state income tax deductions for 529 plan contributions may also make you pay the taxes you would have owed if you didn’t receive those deductions.

However, there are exceptions to the penalty rules . For example, you may be able to take money from the account for non-qualified expenses if you’re attending a military academy, earn a qualifying scholarship, or receive educational tax credits.

For more information on exceptions to the penalty rules, consult our guide .

How Long Can You Leave Money in a 529 Plan?

Some tax-advantaged accounts have rules about how long money can stay in the account. One of the best-known examples of this is the Required Minimum Distribution (RMD) rule for 401(k)s and IRAs. It’s natural to wonder if 529 plans have similar rules.

The good news for savers is that 529 plans don’t limit how long money can remain in the account. The only rule is that the account must have a living beneficiary. You can open a 529 plan for a child and keep money in the account until they’re 80 years old or older.

529 plans play an important role in your college savings plan, but you’ll make the most of them if you understand 529 qualified expenses and how to prove them.

Related Articles

Rollovers From a 529 Plan to Roth IRA: What to Know

Where To Open a 529 Plan: What To Consider When Selecting a Plan

Can You Use a 529 Plan to Pay for Health Insurance?

What’s the Average Cost of College Tuition in 2024?

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American Opportunity Tax Credit and Other Education Tax Credits for 2023

Claim the American Opportunity Tax Credit or Lifetime Learning Credit if you had eligible higher education expenses in 2023.

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The American Opportunity Tax Credit and the Lifetime Learning Credit are federal tax credits that can lower your upcoming tax bill if you paid for college in 2023.

You can claim these education tax credits as a student if you're not claimed as a dependent on anyone else's tax return. Parents can claim the credit for a student who is a dependent. Spouses can claim the credit if they use the married filing jointly status .

Here's what you need to know about the American Opportunity Tax Credit, Lifetime Learning Credit and education tax forms.

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What is the American Opportunity Tax Credit?

The American Opportunity Tax Credit is a federal tax credit that allows you to lower your tax bill by up to $2,500 if you paid that much in undergraduate education expenses last year.

How the American Opportunity Tax Credit works

The American Opportunity Tax Credit lets you claim all of the first $2,000 you spend on eligible education expenses, plus 25% of the next $2,000, for a total of $2,500. Qualified expenses include:

Mandatory school fees.

Books and supplies.

You may not claim living expenses or transportation costs.

Who can claim the American Opportunity Tax Credit?

The American Opportunity Tax Credit is for undergraduate college students only. To qualify, students must meet the following criteria, according to the IRS:

Be pursuing a degree or other recognized education credential.

Be enrolled at least half time for at least one academic period beginning in the tax year.

Not have finished the first four years of higher education at the beginning of the tax year.

Not have claimed the American Opportunity Tax Credit for more than four tax years.

Not have a felony drug conviction at the end of the tax year.

As a student, you can claim the credit on your taxes for a maximum of four years as long as no one else, like your parents, claims you as a dependent on their tax returns. Parents will claim the credit, instead of the student, if they paid for the student's education expenses and have the student listed as a dependent on their return.

Your 2023 modified adjusted gross income, or MAGI, determines how much of the American Opportunity Tax Credit you can claim:

What the American Opportunity Credit is worth

The American Opportunity Tax Credit lowers the amount of taxes you pay. For example, if you owe $3,000 in taxes and get the full $2,500 credit, you’ll only have to pay $500 to the IRS.

Is the American Opportunity Tax Credit refundable?

Yes, it's refundable. You can still receive 40% of the American Opportunity Tax Credit's value — up to $1,000 — even if you earned no income last year or owe no tax. For example, if you qualified for a refund, this credit could increase the amount you'd receive by up to $1,000. That's why the American Opportunity Tax Credit is typically the best education tax break for students and their families.

» MORE: Guide to filing taxes with student loans

What is the Lifetime Learning Credit?

The Lifetime Learning Credit is a a federal tax credit that can reduce your taxable income by up to $2,000 if you're pursuing an undergraduate, graduate, vocational or non-degree program. Unlike the American Opportunity Tax Credit, there's no limit to the number of tax years in which you can claim this credit.

How the Lifetime Learning Credit works

You can claim 20% of the first $10,000 you paid toward 2023 tuition and fees, for a maximum of $2,000 each year.

Course supplies, living expenses and transportation costs are not qualified expenses for the Lifetime Learning Credit.

Who can claim the Lifetime Learning Credit?

The Lifetime Learning Credit is ideal for graduate students or anyone taking classes to develop new skills, even if you already claimed the American Opportunity Tax Credit on your taxes in the past.

Students can claim the Lifetime Learning Credit for themselves if they file their own taxes. Parents of dependent students can also claim the credit.

To qualify for the Lifetime Learning Credit, you must meet the following criteria, according to the IRS:

Be enrolled or taking courses at an eligible educational institution.

Be taking higher education courses to get a degree or other recognized education credential or to get or improve job skills.

Be enrolled for at least one academic period beginning in the tax year.

Your 2023 modified adjusted gross income, or MAGI, determines how much of the Lifetime Learning Credit you can claim:

Is the Lifetime Learning Credit refundable?

No, the Lifetime Learning Credit is not refundable. You can use the credit to pay any tax you owe, but you won't receive the money back as a refund, even if you earned no income or owe no tax.

» MORE: The difference between tax credits and tax deductions

American Opportunity Tax Credit vs. Lifetime Learning Credit

The American Tax Opportunity Credit is generally more valuable that the Lifetime Learning Credit, if you qualify. You can't claim both the American Opportunity Tax Credit and the Lifetime Learning Credit for the same student or the same qualified expenses.

Here are the key differences between these two education tax credits:

Education tax forms

In January your school will send you Form 1098-T, a tuition statement that shows the education expenses you paid for the year. You’ll use that form to enter the corresponding amounts on your tax return to claim an education tax credit or deduction.

If you also paid student loans , you may be able to deduct student loan interest from your taxable income. If you paid more than $600 in interest, your servicer will automatically send you Form 1098-E. You can still deduct interest if you paid less than $600, but you’ll have to ask your servicer for the form.

If your company provided funds for educational assistance — like tuition reimbursement or employer student loan repayment — up to $5,250 can be excluded from your taxable income.

On a similar note...

Refinance your student loans

Student loan repayment options: find the best plan for you, what is the save plan for student loans.

post-secondary educational expenses

42 USC § 604(h)(5)(B)

Scoping language

Qualified education expenses include the cost of:

• Tuition and fees required to enroll at or attend an eligible educational institution, and
• Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. These items must be required of all students in your course of instruction.

This information is found in Publication 970, Tax Benefits for Education.

• Tuition and fees
• Room and board
• Books, supplies, and equipment
• Other necessary expenses (such as transportation)
• The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student, or
• The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution.

This information is found in Publication 970, Tax Benefits for Education.

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Practice Note Post-Secondary Education Expenses

Susan Blackwell , Blackwell Family Law

Education expenses are one of the most commonly claimed and ordered s. 7 expenses. There are two types of education expenses that may be claimed as a s. 7 expense: extraordinary expenses for primary or secondary school education and expenses for post-secondary education. The important legal and practical considerations for post-secondary education expenses are set out below. For extraordinary expenses related to primary and secondary school education, please refer to the practice note: Primary and Secondary Education Expenses .

As with all s. 7 expenses, any request for contribution to the post-secondary education expenses for a child must be necessary in terms of the child's best interests and reasonable in light of the financial means of the parties. There is no requirement for post-secondary education expenses to be extraordinary.

Entitlement to Support

Section 7 expenses for a child's post-secondary education are only payable if that child is entitled to ongoing child support. Reference must be made to either s. 31 of the Family Law Act , R.S.O. 1990, c. F.3 ("FLA"), or ss. 2 and 15.1 of the Divorce Act , R.S.C. 1985 (2nd Supp.), c. 3 (only where the child's parents were married and the case is heard by the Superior Court of Justice or Unified Family Court) to determine entitlement. The FLA was amended in December 2017 so that the effect of the wording for entitlement is the same as under the Divorce Act . Prior to that date, children over age 18 were only entitled to support under the FLA if they were in full-time school. Now, under both Acts, children are entitled to support under age 18 and over age 18 if the child is unable to support themselves because of illness, disability or other cause.

Entitlement to child support will terminate if the child is over 16 and has "withdrawn from parental control." There is a lot of case law on this point, particularly where the adult child is estranged from the child support payor. The threshold for withdrawal from parental control is very high and not reached in most cases. Please refer to the practice note: Child Support: Children over Age of Majority for a general discussion of entitlement under the Divorce Act for children over age 18.

Age of Child

There is no absolute cut-off for support payments, including s. 7 payments to cover post-secondary education costs, in terms of age or level of education. Until a child is 18, both the Divorce Act and the FLA require parents are required to pay child support unless the child has "withdrawn" from parental control or charge. After age 18, child support may continue, depending on the child's ability to become self-sufficient, the child's participation in an education program, the child's and parents' financial means. Generally speaking, parents will be expected to support their children after the age of 18 until the completion of at least one post-secondary program if they can afford to do so. The payment of child support during a second or third post-secondary program is now quite common and required by courts if the parents have the financial resources available to do so. 

Part-Time vs. Full-Time Education Programs

The amendment to the FLA in December 2017 has put an end to the debate about whether a child is entitled to support if only attending school part-time. Clients whose orders were made under the old FLA provisions should review their Orders and see whether they need to be changed to allow for this new continued eligibility. Agreement precedents which used to require a child to be in full-time school for child support to continue past age 18 should be updated to reflect the new eligibility rules. Lawyers should consider advising past clients whose child support was limited to the full-time school requirement about this change so that old Agreements and Orders can be amended. If not, children whose parents received support under the old rules of the FLA .will be cut off from child support, while their peers whose parents were married and proceeding in the Superior Court of Justice ( i.e. , receiving support pursuant to the Divorce Act ) continue to be entitled to support even while not enrolled in school full-time. There had been talk for years of a possible amendment to the FLA and an expansion of the Unified Family Court, the combination of which would have corrected the discrepancy. The amendment to the FLA in 2017 finally resolved the problem.

Temporary Breaks -- What Happens in a "Gap Year"?

Entitlement to child support may be temporarily suspended or may continue throughout the breaks between school years and the breaks which take place when children change between post-secondary programs or take time "off" to figure out next steps. A break in attending school does not automatically terminate entitlement to child support under either the FLA or the Divorce Act. Entitlement will likely continue unaffected if the child is already enrolled in the next program before the first program ends. If a child finishes one program, works for a while and then enrolls later in another, entitlement will likely be suspended for the period of time from the end of the first program to the date of enrollment in the second program. Courts engage in a nuanced analysis considering the child's diligence and timely planning in determining whether the entitlement revives on the date of enrollment or when studies actually resume. The same factors are considered later when deciding the appropriate method of determining the amount that the child should contribute to his or her own support during this period (see: Aubert v. Cipriani ( supra ) for a thorough review of the law in this situation). Be careful when relying on pre-December 2017 case law on this point. The changes to entitlement under the FLA should affect the analysis on this issue.

Cases decided under the Divorce Act will look at the actual financial reliance of the child on his or her parent during this gap and in particular at the amount the child does or could reasonably earn from employment during this time.

How is the Contribution to Post-Secondary Expenses Calculated?

For Children under Age 18

When a child is under age 18, the Child Support Guidelines, O. Reg. 391/97 ("Guidelines"), require that the table amount of child support is paid, plus an additional amount as a contribution to the child's post-secondary education expenses. Many children start post-secondary programs prior to their 18th birthdays. For these children, a court can only order the table amount plus s. 7 expense calculation approach, unless the parents consent to another arrangement that adequately benefits the child. However, the case law does not distinguish between 17 year old children attending post-secondary education and those over age 18. Once a child starts a post-secondary program, the over age 18 approach is usually applied.

For Children Age 18 or over

Once the child is age 18 or over, the courts have discretion under s. 3 (2) of the Guidelines to choose between two approaches:

• the standard approach of table amount plus s. 7 contribution; or
• if that approach would be inappropriate, an amount considered to be appropriate considering the condition, means, need and other circumstances of the child and the financial means of the parents.

What this means in practice is that after age 18, 1 of 2 methods of calculating a parent's contribution to post-secondary expenses may apply. As discussed below, the choice of calculation method usually depends on the child's living arrangements during the education program.

Which Calculation Method?

Two streams of approach for children over age 18 have emerged from the case law depending on whether the child lives at home or away from home during post-secondary studies:

• if the child continues to reside primarily with one parent, the table amount plus s. 7 expense formula for the calculation is usually followed; or
• if the child resides away from home for a significant amount of time, a court will use the second option under s. 3 (2) of the Guidelines and determine a parent's contribution as a percentage of the total costs of the child while away at school.

Under the second approach, there will either be no table amount of support or a reduced table amount payable for certain months.

What Costs Are Included?

What exact costs are included in post-secondary expenses is not clearly defined in the Guidelines or in the case law. Two streams of approach have emerged from the case law.

If the child continues to reside at home while attending school, regular monthly support will usually continue at the full rate and the list of expenses shared as s. 7 expenses will be more limited. In that situation, s. 7 expenses may be limited to tuition and student fees, books and computer costs.

If the child is residing away from home at school, payment of the table amount of support is often suspended or reduced. The categories of expenses included as s. 7 expenses to be shared is more expansive and may include all items in the student's budget. In this latter situation, transportation costs and living expenses (including food, mobile telephone and other incidentals) are often included along with tuition, books and computer costs.

Some cases end up somewhere in between. Because judicial discretion is allowed when determining both s. 7 contributions and child support for children over age 18, these cases are decided on a case-by-case basis and vary with the unique facts of each student and their family.

Tuition fees and the cost of books are routinely included in all cases.

The following expenses are sometimes included: 

• residence (sometimes a deduction is made to account for possible overlap between the room and board component of table support);
• computers and related expenses;
• transit ( e. , car or transit pass if commuting rather than living in residence);
• student fees; and
• rent and other living expenses.

Child's Contribution

Children are expected to make a reasonable financial contribution to their own post-secondary education costs. All the financial means of the child are considered and are relevant to the determination of the child's contribution. Those "means" include both income and capital resources, such as:

• employment income;
• scholarships;
• grants and bursaries; and
• loans (including OSAP).

The extent that a child is expected to contribute to his or her education costs varies widely from case to case. The analysis is very fact specific, even within the same family.

Children are expected to earn some income while attending post-secondary education. Usually, children earn income during the 4-month summer school break. But, not all programs take such a break. Some programs require an unpaid internship. Courts and, as a result, parents and their lawyers must look to the actual income that either has been or reasonably can be earned by this child. Some children are able to earn income from part-time jobs while they are going to school. If the parents' financial means are limited, there may be a greater expectation on the child to have some part-time work, but only if it does not interfere with the child's ability to succeed in his or her education program. If income is earned, some, but not all, of the child's income will be applied to the child's s. 7 costs and deducted before the parents' shares are calculated.

Student Loans

Whether or not a child will be expected to take out student loans depends on the facts of the case, including the intentions of the parents prior to separation and the economic realities of the parties at the time the education expense is incurred. Student loans are routinely considered and will usually reduce the contribution required by a parent if those loans have in fact been received. The student loan should be considered a contribution by the child, since it will be the child who has to pay the loan following graduation. In some cases, where a parent has wrongly refused to contribute to a child's education costs, the parent may be required to make a full contribution to reimburse the child for the loan that otherwise would not have been incurred. And, sometimes a loan is received one year and reduces the parent's obligation, but is not required of the child the next year, or vice versa. As noted above, these cases are very fact-specific.

How the Child's Contribution Fits into the Calculation

Section 7 (2) of the Guidelines states that the child's contribution is deducted first, then the remaining balance of the expense is shared between the parents. For a sample calculation, see precedent: Contribution Calculation (Section 7 Expenses, Post-Secondary Expenses) (Sample) .

Sometimes courts allocate a percentage of the post-secondary costs to the child as well as to the parents on an ongoing basis. For example, the child and each of the parents might be responsible for one-third of the post-secondary education costs. In that case, it is important to be very careful in thinking about what costs come off the total before the balance is divided. Do scholarships and grants count as part of the child's contribution or do they come off before each proportionate share of the cost is calculated? Care should be taken when reading loan documents to note what part of the loan is a grant that will be forgiven and what portion must be repaid by the child.

Registered Education Savings Plans ("RESPs")

RESP amounts are credited against the cost of post-secondary education. Whether the RESP is credited against the amount payable as the child's contribution or is credited against either parent's share depends on when the RESP was accumulated and who made the contributions. RESPs that were accumulated prior to separation are deducted from the expenses before the support recipient and payor's portions are calculated, unless a court order or agreement specifies a different allocation. Similarly, RESPs that were contributed to by third parties are treated as gifts to the children and are deducted from the costs before the cost-sharing calculation determining the amount payable by the support recipient and payor. However, amounts contributed by either the support recipient or payor after separation will be credited to his or her share of the amount owing after the cost-sharing calculation has been made.

Note that the contribution to an RESP itself does not count as an eligible s. 7 expense. In most cases where a request for an order compelling a parent to contribute to an RESP is raised, it is dismissed because it is not an enumerated expense on the closed s. 7 list.

Suggested Supporting Documentation

Lawyers and clients can resolve issues relating to the payment of post-secondary education expenses in an efficient manner by gathering and sharing the following information and documents:

• confirmation of enrolment in education program indicating specific period of enrolment (transcripts and letters from educational institution);
• child's income (pay stubs, tax returns, bursary, scholarship and student loan documents);
• child's living expenses (lease, utility bills and residence receipts)
• cost of books, computer and related expenses (receipts);
• Form 13 financial statement budget completed by student (see: Financial Statement (Support Claims) (Form 13) ).

Courts expect and require this evidence. A helpful tool for gathering and organizing this evidence is the precedent: Supporting Information and Evidence (Section 7 Expenses) .

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Compare Education Credits

There are several differences and some similarities between the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC).  You can claim these two benefits on the same return but not for the same student or the same qualified expenses. See " No Double Benefits Allowed " for more information on claiming one or more education benefits. 

Tax Year 2023 Education Benefits Comparison

ˆ Third Party -Qualified education expenses paid by a third party for you or a student you claimed as a dependent on your return are considered paid by you for the AOTC and LLC. Payments by third parties include amounts paid by relatives or friends.

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If you need to adjust your AGI to find your MAGI, there are worksheets in the Publication 970 PDF to help you.

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College Expenses: What Deductions are Available & Who Gets Them?

There are three major credits and deductions available to those with higher education costs.

• Tuition and Fees Deduction
• American Opportunity Credit
• Lifetime Learner Credit

College is expensive, and these credit/deductions help relieve some of the burden for those with post-secondary education expenses. First, what expenses qualify toward the deductions?

Qualified expenses for all three include tuition and fees, course-related books, supplies, and equipment. Non-qualified expenses include room and board. It’s important to note that any qualified expenses are reduced by scholarships and employer and veteran’s assistance.

Each has various restrictions on who is eligible. It’s important to note that you can only take one deduction/credit per student in a given year, so getting this right is important. Let’s take a look.

This deduction is usually easiest to qualify for. The deduction is available to those with qualified expenses at any accredited post-secondary education institution. Part-time enrollment qualifies. The deduction is a dollar for dollar deduction up to $4,000 for those who are single or head of household with Adjusted Gross Income less than $65,000 or married filing joint with adjusted gross income less than $130,000. The credit is reduced to a maximum of $2,000 for those who are single or head of household with Adjusted Gross Incomes between $65,001 and $80,000 or married filing joint $130,001 to $160,000. If you exceed these thresholds, the deduction is phased out entirely.

The deduction is not allowed for those who file as married filing separate. Also, it is not available for those who qualify as a dependent on another person’ return. This is true even if the dependent is paying the fees. Therefore, this deduction usually goes to the parents, regardless of who is paying.

Note that this is a deduction, and not a credit. There is a big difference here. Credits reduce your tax dollar for dollar. Deductions reduce your taxable income. So, let’s say you’re in the 22% tax bracket, for example. A $4,000 deduction will save you $880 in tax (22% of $4,000) while a $4,000 credit would save you $4,000.

This credit is a little harder to qualify for but is usually the most advantageous. It is for qualified expenses for those at a post-secondary institution who have not completed the first four years of post-secondary education (bachelor’s degree). The courses must also lead to a degree or recognized education credential. The maximum credit is $2,500 calculated as a dollar for dollar credit on the first $2,000 in qualified expenses and then a 25% credit for each dollar spent on the next $2,000 in qualified expenses.

This credit I reduced for those who are married filing joint and have Adjusted Gross Income between 160,000 and $180,000 and disallowed for those married filing joint with AGI above $180,000. Those who are single or head of household have a range between $80,000 and $90,000. Those married filing joint do not qualify.

Unlike the Tuition and Fees deduction, this credit follows the dependency. This means that regardless of who is paying, the parents will receive the credit if they claim the child, and the child will receive the credit if they go unclaimed. This is where tax planning can come into play to determine the best option. Note that this credit is per student, not per taxpayer. Thus, if a taxpayer has multiple children in college, it is possible to receive this credit for each child.

This credit is probably easiest of the three to qualify for, but usually the least advantageous. To qualify, a student must be enrolled in an undergraduate, graduate, professional degree, or program that improves job skills. There is also no limit on the number of years this credit can be claimed, unlike the other two which are limited to 4 per eligible student. Also, this is a per household credit, so a taxpayer can only take it once, regardless of how many in the household qualify.

The credit is equal to a maximum of $2,000 and is calculated as 20% of qualified expenses up to $10,000. The phase out limits are $116,000 to $136,000 for those who are married filing joint, and $58,000 to $68,000 for those who are single or head of household. Those who have Adjusted Gross Income within those ranges will receive a reduced credit, and those who exceed those ranges are not eligible. Those married filing separately are not eligible.

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Retirement topics - Hardship distributions

More in retirement plans.

• Types of retirement plans
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• Topic index

Although not required, a retirement plan may allow participants to receive hardship distributions. A distribution from a participant’s elective deferral account can only be made if the distribution is both:

• Due to an immediate and heavy financial need.
• Limited to the amount necessary to satisfy that financial need.

Immediate and heavy financial need

The employer determines a participant has an immediate and heavy financial need based on the plan terms and all relevant facts and circumstances.

• Consumer purchases (such as a boat or television) are generally not considered an immediate and heavy financial need.
• A financial need may be immediate and heavy even if it was reasonably foreseeable or voluntarily incurred by the employee.

A distribution is automatically considered to be necessary to satisfy an immediate and heavy financial need if all of the following requirements are met:

• The distribution isn't greater than the amount of the immediate and heavy financial need, including the amounts necessary to pay any taxes resulting from the distribution.
• The employee has obtained all other currently available distributions (including distribution of ESOP dividends under section 404(k), but not hardship distributions) and nontaxable (at the time of the loan) plan loans, including all other plans maintained by the employer.
• The employee isn't allowed to make elective deferrals to the plan for at least six months after the hardship distribution.

Safe harbor distributions

• Effective Feb. 23, 2017, 401(k) plans may elect to use the "Summary substantiation method" for the six types of hardship distributions below.
• Effective March 7, 2017, 403(b) plans may elect to use the "Summary substantiation method" for the six types of hardship distributions below.

Under a “safe harbor” in IRS regulations, an employee is automatically considered to have an immediate and heavy financial need if the distribution is for any of these:

• Medical care expenses for the employee, the employee’s spouse, dependents or beneficiary.
• Costs directly related to the purchase of an employee’s principal residence (excluding mortgage payments).
• Tuition, related educational fees and room and board expenses for the next 12 months of postsecondary education for the employee or the employee’s spouse, children, dependents or beneficiary.
• Payments necessary to prevent the eviction of the employee from the employee’s principal residence or foreclosure on the mortgage on that residence.
• Funeral expenses for the employee, the employee’s spouse, children, dependents, or beneficiary.
• Certain expenses to repair damage to the employee’s principal residence.

Limited to the amount necessary

The amount of a hardship distribution must be limited to the amount necessary to satisfy the need. This rule is satisfied if:

• The distribution is limited to the amount needed to cover the immediate and heavy financial need, and
• The employee couldn't reasonably obtain the funds from another source.

Unless the employer has actual knowledge to the contrary, the employer may rely on the employee’s written statement that their need can’t be relieved from other available resources, including:

• Insurance or other reimbursement.
• Liquidation of the employee’s assets.
• The employee’s pay, by discontinuing elective deferrals and after-tax employee contributions.
• Plan loans or reasonable commercial loans.

An employee doesn’t have to use alternative resources if doing so would increase the amount of the need. For example, an employee requesting a hardship to purchase a principal residence doesn’t have to obtain a plan loan if the loan would disqualify the employee from obtaining other necessary financing.

Account balances eligible for hardship distributions

In a 401(k) plan, hardship distributions can generally only be made from accumulated:

• elective deferrals (not from earnings on elective deferrals)
• employer nonelective contributions (sometimes referred to as “profit-sharing contributions”) and
• regular matching contributions.

A plan may, but isn't required to, apply the same conditions to hardship distributions of employer nonelective and regular matching contributions as it applies to hardship distributions of elective deferrals. Some 401(k) plans may allow hardship distributions of certain kinds of contributions made to the plan before 1989.

If you are an employer and:

• You didn’t make hardship distributions according to your plan document, find out how you can correct this mistake.
• You made hardship distributions but your plan doesn’t have language permitting them, find out how you can correct this mistake.

Tax treatment of hardship distributions

Hardship distributions are subject to income taxes (unless they consist of Roth contributions). They may also be subject to a 10% additional tax on early distributions . Employees who take a hardship distribution can't:

• repay it to the plan, or
• roll it over to another plan or an IRA.

Changes coming for 2019

The Bipartisan Budget Act of 2018 enacted three changes to these rules, specifically:

• repealing the previously-required 6-month suspension of elective deferrals after a participant received a hardship distribution
• permitting amounts previously contributed as qualified non-elective or qualified matching contributions (QNECs/QMACs) to be available as a hardship distribution.
• removing the requirement to take available plan loans prior to requesting a hardship.
• Regulations are also proposed which would further:
• revise the applicable standards governing when a distribution can be made on account of hardship
• permit hardship distributions to participants seeking to repair a primary residence, even if that repair would not otherwise qualify for a casualty loss deduction
• apply most of these rules to participants in 403(b) arrangements

Although the Act is effective for hardship distributions made in 2019, taxpayers can rely on these rules for purposes of hardship distributions made in 2018 as well.

REG-107813-18 PDF  

• Retirement plans FAQs regarding hardship distributions
• Treasury Reg. Section 1.401(k)-1(d)(3)
• Do's and Don'ts of hardship distributions
• Hardship distribution tips from EP Exam
• 401(k) Plan hardship distributions - Consider the consequences