There are a few federal tax benefits related to education. What Sen. Schumer might have referred to is the tuition and fees deduction which has been around for awhile. Congress recently renewed it and President Bush just signed it into law again. It allows for parents of students or students who cannot be claimed as dependents on anyone’s tax return, to take a deduction for qualified educational expenses. The maximum deduction is $4000. There are also two education tax credits that you might be qualified to take. Of those three benefits however, (the two credits and the one deduction), you can only take one per student. Generally, a tax credit is more beneficial than a deduction, because a deduction just reduces your taxable income while a credit actually reduces the tax you owe dollar for dollar. For 2006, one might be able to take as much as $2200 in a non-refundable education tax credit.

Determining whether or not you are eligible for any education tax benefit isn’t too difficult when you are equipped with the right information. A professional tax preparer should be able to help you or, if your income is below $38,000 or you are above age 60, you could qualify for free tax assistance either directly from your local IRS office or from a VITA/AARP tax prep site in your neighborhood.

Your school should send you a form 1098-T very shortly that will summarize the amount of educational expenses you paid. Using that form (a copy of which is sent to the IRS), you can determine the amount of qualified educational expenses you had incurred throughout the year which will determine how much of a tax benefit you can take. There are some other criteria that you need to meet as well. Although the 2006 version of the reference below is not available yet (should be shortly), most of the information contained therein will still be accurate save for some of the income limits and benefit amounts.

If after reading it you have some specific questions, I will try my best to answer if you post them or e-mail me. The more information you provide about yourself (amount of money paid for educational expenses and for what, scholarships received, type of school you are attending, ‘06 total income etc) then that will help me to better help you. Please just be sure to read the relevant parts of publication 970 first because that will answer most of your basic questions.

Congress did reinstate the education credit which had been set to sunset this year. So the education credit that you are eligible are the same as they have been in the past. What you heard Sen. Schumer doing is claiming credit for the reinstatement. He may have also claimed credit for the sun coming up but he had very little to do with that also. Do find a tax professional in your area that is the best way to see that you get all of the credits that you have coming. This is a none refundable credit so it will only reduce your tax liability. It is based on the expense you had for education and the maximum is $2,000