Do you have a student loan in which you make payments, some of which is applied to interest accrued on the loan? If so, you may be eligible to deduct some of the interest when you file your federal tax return. Your lender will report the amount of interest you paid using IRS Form 1098-E, of which both you and the IRS will receive a copy.
Form 1098-E and Loan Servicers
1098-E is distributed by loan “servicers”, otherwise known as the people who collect the payments. In some cases, this may be the actual lender of the loan, although sometimes an outside company is hired to collect payments. In either case, the servicer is required to send a Form 1098-E to anyone who pays $600 or more in student loan interest. Typically, the forms must be sent by the end of January. If you have multiple loans with different companies, you might receive multiple forms.
When You Don’t Receive a Form
If you don’t receive your 1098-E form by the middle of February, you may have only paid less than $600 in interest. If you think you should have received a form, it’s recommended by the U.S. Dept. of Education that you contact your servicer directly. Generally, there is contact information on any communication you have received from the servicer.
Most loan companies have information on their websites or other communication regarding 1098-E during tax season. Some websites allow borrowers to login to their accounts online and print any interest documents or a 1098-E.
Purpose of the 1098-E
The 1098-E is used to determine the amount of interest you can deduct. If you meet the following requirements, you may be eligible to deduct up to $2,500 in student loan interest from the base amount of your taxable income.
- You are legally obligated to pay the interest, as it is your responsibility and not another’s
- You do not file a return as Married, filing Separately.
- You aren’t claimed as a dependent on anyone else’s tax return (also applies to your spouse if you file a joint return
- Your income falls below the threshold
You aren’t required to itemize deductions if you want to claim student loan interest. However, you must file a 1040 or 1040A, as student loan interest deductions aren’t available on a Form 1040EZ.
Eligibility for student loan interest deductions revolve around your modified adjusted gross income (MAGI), which is calculated during the tax return process. At higher incomes, the deduction amount is reduced or eliminated entirely. For 2016:
Single taxpayers: reduced deduction at MAGI $65,000, eliminated at $80,000
Married taxpayers: reduced at $130,000, eliminated $160,000