Learn about education related deduction

Learn more about the college tuition deduction.

College Tuition Deduction

Massachusetts allows a deduction for tuition payments paid by taxpayers for

  • Themselves
  • Their spouses, and
  • Their dependents

to qualifying two or four-year colleges leading to:

  • Undergraduate or associate degrees
  • Diplomas, or
  • Certificates.

The deduction is equal to the amount of which the tuition payments,

  • Less any scholarships
  • Grants or
  • Financial aid received,

exceed 25% of the taxpayer's Massachusetts adjusted gross income.

Tuition payments for students pursuing graduate degrees at such colleges or universities aren’t eligible for the college tuition deduction.

Qualified college tuition expenses include only those expenses designated as tuition or mandatory fees required for the:

  • Enrollment or attendance of the taxpayer or
  • Any dependent of the taxpayer at an eligible educational institution.

No deduction is allowed for any amount paid for

  • Room and board
  • Books
  • Supplies
  • Equipment
  • Personal living expenses
  • Meals
  • Lodging
  • Travel or research
  • Athletic fees
  • Insurance expenses, or
  • Other expenses

unrelated to an individual's academic course of instruction.

Educational Assistance Programs

No deduction is allowed for any portion of expenses that are:

  • Paid or reimbursed by an employer and
  • Excluded from gross income under I.R.C. § 127.

Qualification for College Tuition Deduction is determined by completing the following worksheets / Schedules:

For residents:

  • The Massachusetts AGI Worksheet and
  • The College Tuition Deduction Worksheet.

Student Loan Interest Deductions

General Rules:
Massachusetts allows 2 student loan interest deductions for interest paid on a "qualified education loan":

  • The federal deduction at I.R.C. § 221 for both graduate and undergraduate student loan interest paid,
    • Reported on Schedule Y, Line 10 which has a maximum amount allowed; and
  • The Massachusetts deduction for interest paid on a qualified undergraduate student loan,
    • Reported on Schedule Y, line 12 which is unlimited.

The same taxpayer may claim both deductions on the same return, provided the deductions are not taken for the same interest payments.

Federal Student Loan Interest Deduction

A deduction is allowed for interest paid by the taxpayer, up to an annual maximum of $2,500,

  • For a qualified education loan for both undergraduate and graduate education,  and
  • Subject to taxpayer income limitations.

Any federal tax law changes to this deduction will not be automatically adopted. Massachusetts will continue to follow the Code of January 1, 2005.

The maximum deduction of $2,500 is phased out based on:

  • Filing status and
  • Federal modified adjusted gross income (MAGI).

The deduction is disallowed if MAGI exceeds certain thresholds.

Qualified Education Loan for Dependents:

Qualified education loan means any indebtedness incurred by the taxpayer solely to pay qualified higher education expenses which are incurred on behalf of the

  • Taxpayer
  • The taxpayer's spouse or
  • Any dependent of the taxpayer,

as of the time the indebtedness was incurred.

Dependents, therefore, wouldn’t be eligible for the deduction for the tax year if:

  • A dependent deduction under I.R.C. § 151 with respect to such individual is allowed to another taxpayer for the taxable year beginning in the calendar year in which such individual's tax year begins.

No Tax Status and Limited Income Credit Calculation
This deduction impacts the calculation of

  • No Tax Status and the
  • Limited Income Credit,

as it is treated as an adjustment to arrive at Massachusetts adjusted gross income on the:

  • Massachusetts AGI Worksheet and
  • Schedule NTS-L-NR/PY.

Massachusetts Undergraduate Student Loan Interest Deduction

A taxpayer may claim a Massachusetts deduction for interest payments on certain education debt.

"Education debt" must be a loan that meets all of the criteria below:

  • It is administered by the financial aid office of a two-year or four-year college at which
    • the taxpayer, or
    • a qualified dependent was enrolled as an undergraduate student.
  • It must have been secured through a:
    • State student loan program,
    • Federal student loan program, or  
    • Commercial lender, and
  • It must have been spent solely for the purposes of paying tuition and other expenses directly related to the school enrollment.

The Massachusetts deduction:

  • Applies only to undergraduate education loans and not to graduate education loans
  • Unlike the federal deduction, there is no maximum deduction amount allowed; whatever amount qualifies is allowable
  • Unlike the federal deduction, the Massachusetts deduction is allowed regardless of:
    •  Taxpayer's income and
    • Regardless of the age of the loan.

The deduction isn’t allowed if the taxpayer claims the deduction allowed under I.R.C. § 221 for the same interest payments.

No Tax Status and Limited Income Credit Calculation

This deduction doesn’t impact the calculation of

  • No Tax Status and
  • the Limited Income Credit,

as it is treated as a deduction t to arrive at Massachusetts taxable income.

Student Loan Examples

Examples where the Phase out Rules don't apply:

Example #1

Single taxpayer with federal modified AGI of $48,000
Undergraduate interest of $2,900

Since this single taxpayer's federal modified AGI is $50,000 or less, he or she can deduct interest as follows:

Federal:

  • Allowable 1040, Line 33 - $2,500, the maximum combined graduate and undergraduate interest paid deduction allowed.

Massachusetts:

  • Allowable Schedule Y, Line 10 federal deduction - $2,500, the maximum federal deduction for combined undergraduate and graduate interest paid was an allowable Massachusetts deduction;
  • Allowable Schedule Y, Line 12 Massachusetts deduction - $400, undergraduate interest not claimed as a federal deduction was an allowable Massachusetts deduction;
  • Alternatively, allowable Schedule Y, Line 12 Massachusetts deduction - $2,900 since all of the interest is for undergraduate and if it is clear that taxpayer does not qualify for No Tax Status of Limited Income Credit.

Example #2

Married filing joint taxpayer with federal "modified AGI" of $103,000.

Graduate interest $1,700
Undergraduate interest $1,500
Total student loan interest $3,200

Since taxpayers' federal modified AGI is $105,000 or less, they can deduct interest as follows:

Federal:

  • Allowable 1040, Line 33 - $2,500, the maximum combined graduate and undergraduate interest paid deduction allowed.

Massachusetts:

  • Allowable Schedule Y, Line 10 federal deduction - $2,500, the maximum federal deduction for combined undergraduate and graduate interest paid was an allowable Massachusetts deduction;
  • Allowable Schedule Y, Line 12 Massachusetts deduction - $700, undergraduate interest not claimed as a federal deduction, was an allowable Massachusetts deduction;
  • Alternatively, Schedule Y, Line 10 - $1,700 and Line 12, $1,500 if it is clear that taxpayer doesn’t qualify for No Tax Status of Limited Income Credit.

Example #3

Married filing joint taxpayer with federal "modified AGI" of $85,000.

Graduate interest $3,000
Undergraduate interest $1,100
Total student loan interest $4,100

Since taxpayers' federal modified AGI is $85,000 or less, they can deduct interest as follows:

Federal:

  • Allowable 1040, Line 33 - $2,500, the maximum combined graduate and undergraduate interest paid deduction allowed.

Massachusetts:

  • Allowable Schedule Y, Line 10 federal deduction - $2,500, the maximum federal deduction for combined undergraduate and graduate interest paid was an allowable Massachusetts deduction;
  • Allowable Schedule Y, Line 12 Massachusetts deduction - $1,100, undergraduate interest not claimed as a federal deduction, was an allowable Massachusetts deduction;
  • No Alternative filing.

Examples where the Phase out Rules Apply

Example #1

Married filing joint taxpayers with modified AGI of $115,000

Graduate interest $2,300
Undergraduate interest $1,000
Total student loan interest $3,300

Since taxpayers' modified AGI falls within the phase out thresholds of $110,000 and $140,000 for married filing joint, they must reduce the federal deduction allowed on Schedule Y as follows:

($120,000 - $115,000) = 17% phase out percentage
$30,000

$2,300 x 17% (.17) = $391 phase out amount

Federal Deduction:

($120,000 - $115,000) = 17% phase out percentage
$30,000
$3,300 x 17% (.17) = $561 phase out amount

Massachusetts Deduction:

  • Allowable Schedule Y, Line 10 federal deduction - $1,909 ($2,300 - $391), the phase out percentage of 17% is applied against the federal graduate interest; and
  • Allowable Schedule Y, Line 12 Massachusetts - $1,000, the full amount of undergraduate interest.
  • $2,500, the maximum allowable deduction (combined interest of $3,300 - $561= $2,739 but limited to $2,500)

Example #2

Married filing joint taxpayers with modified AGI of $148,000

Graduate interest $1,900
Undergraduate interest $800
Total student loan interest $2,700

 

Federal Deduction:

  • Since taxpayers' modified AGI of $148,000 exceeds the modified AGI threshold for married filing joint taxpayers ($135,000 or more), taxpayers may not claim the student loan interest deduction.

Massachusetts Deduction:

  • Allowable Schedule Y, Line 10 federal deduction = $0 since the taxpayers' modified AGI of $148,000 exceeds the modified AGI threshold for married filing joint taxpayers ($140,000 or more) they may not claim the federal deduction on Schedule Y;
  • Allowable Schedule Y, Line 12 Massachusetts deduction = $800, the full amount of undergraduate interest.

Reporting Deduction on Your Tax Return

College tuition deduction

  • Residents must complete the:
    • Form 1, Line 27 Massachusetts AGI Worksheet - No Tax Status and
    • The Schedule Y, Line 11 Worksheet - College Tuition Deduction, 2014 Form 1 Instructions Pages 12-13 and 19.
    • If qualified, enter the amount from Line 6 of the College Tuition Deduction Worksheet on Form 1, Schedule Y, Line 11.
  • Part-year residents must complete the:
    • Schedule NTS-L-NR/PY, No Tax Status Limited Income Credit and
    • Schedule Y, Line 11 Worksheet - College Tuition Deduction, 2014 Form 1-NR/PY Instructions Pages 23- 24.
    • To determine the amount allowable:
      •  Multiply the amount reported on Line 6 of the College Tuition Deduction Worksheet by
      • Form 1-NR/PY, Line 2, Part-Year Resident Ratio, since this deduction must be prorated based upon the number of days a Massachusetts resident.
    • If qualified, enter the amount from Line 7 of the worksheet on Form 1-NR/PY, Schedule Y, Line 11.
  • Nonresidents must complete the:
  • To determine the amount allowable:
    •  Multiply the amount reported on Line 6 of the College Tuition Deduction worksheet by
    • Form 1-NR/PY, Line 14g, Nonresident Deduction and Exemption Ratio, since this deduction must be prorated based upon the amount of taxpayer's Massachusetts gross income (derived from sources within Massachusetts) to Massachusetts gross income derived from all sources as if the taxpayer were a full year Massachusetts resident.
  • If qualified, enter the amount from Line 7 of the worksheet on Form 1-NR/PY, Schedule Y, Line 11.

Federal Student Loan Deduction

  • The amount allowed is entered on either Mass Form 1 or 1-NR/PY, Schedule Y, Line 12.

Massachusetts Student Loan Deduction

  • If Schedule Y, Line 10 is completed: If there are additional interest amounts that qualify for the Massachusetts Interest Deduction that isn't included on Schedule Y, Line 10, enter the additional amount on either:
    •  Mass Form 1 or
    • 1-NR/PY, Schedule Y, Line 12.

For both Federal and Massachusetts Student Loan Deduction

  • Part-year residents must:
    •  Multiply the amount of the allowable deduction by
    • The ratio in Massachusetts Form 1-NR/PY, Line 2, Total Days as Massachusetts Resident,
      • Since this deduction must be prorated based upon the number of days a taxpayer is a Massachusetts resident.
  • Nonresidents must:
    • Multiply the amount of the allowable deduction by
    • Massachusetts Form 1-NR/PY, Line 14g, Nonresident Deduction and Exemption Ratio,
      • Since this deduction must be prorated based upon the amount of taxpayer's Massachusetts gross income (derived from sources within Massachusetts) to Massachusetts gross income derived from all sources as if the taxpayer were a full year Massachusetts resident.

Filing an Abatement or Amended Return

To file an abatement or amended return regarding college tuition deduction, you must provide the following:

  • Social Security number of qualifying student(s);
  • Massachusetts College Tuition Deduction worksheet to verify calculation;
  • Substantiation of expenses.

Federal Student Loan Deduction to show that the deduction was taken federally

  • Copy of Form 1040 - U.S. Individual Income Tax Return (Page 1), or
  • Form 1040X - Amended U.S. Individual Income Tax Return.

Massachusetts Undergraduate Student Loan Deduction to show that the
deduction was taken federally

  • Documents from the lending institution to verify the amount of the student loan interest paid for the year.

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