Sending a child to college can change a family’s financial picture in several ways, and taxes are an important part of the conversation. Tuition, scholarships, student earnings, and education savings all have separate tax rules that may affect one another. Looking at the full picture can help families make more informed choices.

For 2026, families with college students should consider dependency rules, available education credits, 529 plan distributions, scholarships, and student income together. Kevin P. Ellis, CPA can help families review these moving parts and identify the approach that best fits their circumstances.

Can Parents Claim a College Student as a Dependent?

Many parents remain eligible to claim a child as a dependent while the child attends college. A full-time student may generally qualify through age 23. Living away from home for school does not usually prevent a student from meeting the residency requirement because time at school is generally considered a temporary absence.

Financial support is often a key consideration. In general, the student cannot provide more than half of their own support during the year. This calculation can be less straightforward when scholarships, earned income, and other resources are involved.

Scholarships generally are not treated as support provided by the student. As a result, parents may still be able to claim a student even when scholarship assistance covers a meaningful share of college costs. Because dependency status can determine who may use education tax benefits, it should be evaluated carefully before filing.

Education Tax Credits for College Expenses

Two major education credits may be available to eligible taxpayers: the American Opportunity Tax Credit and the Lifetime Learning Credit. Each serves a different purpose, and selecting the appropriate credit can influence the family’s tax result.

The American Opportunity Tax Credit, often called the AOTC, may provide up to $2,500 for each eligible student. It is generally available for the first four years of postsecondary education and can include certain required course materials, even when those items are purchased outside the school.

The Lifetime Learning Credit may be worth up to $2,000 per tax return. It applies more broadly to qualifying education, including graduate-level study and courses intended to develop or improve job skills. Unlike the AOTC, the Lifetime Learning Credit does not have a limit on the number of years it may be claimed.

A family cannot claim both credits for the same student in the same tax year. It is also important to remember that room and board does not qualify for either education credit, even though it can represent a substantial college expense.

2026 Identification Requirements and Form 1098-T

Beginning in 2026, education credit claims are subject to stricter identification rules. The taxpayer claiming the credit must have a valid Social Security number issued by the due date of the return. In many situations, the student must meet this requirement as well.

Although this may appear to be a minor filing detail, incomplete or outdated identification information can affect eligibility. Verifying Social Security information before preparing a return may help prevent delays or the loss of a credit.

Families should also review Form 1098-T carefully. While the form reports information related to tuition, it may not show the precise amount of expenses that qualify for an education credit. Scholarships, refunds, and eligible expenses outside of tuition can all affect the calculation, so the form should be considered alongside the family’s full set of records.

Planning 529 Plan Withdrawals

A 529 plan can be a useful education savings vehicle because qualified withdrawals may be tax-free. Eligible expenses can include tuition, books, required supplies, and room and board for a student enrolled at least half-time.

However, the rules for 529 distributions are not identical to the rules for education credits. For example, room and board may be a qualified 529 expense but does not qualify for the American Opportunity Tax Credit or the Lifetime Learning Credit. Understanding that distinction can help families assign funds more thoughtfully.

In most cases, the same expense cannot support both a tax-free 529 withdrawal and an education tax credit. Coordinating payments and withdrawals is therefore important. Families that map out which expenses will be paid with 529 funds and which will support a credit may be in a stronger position than those who make decisions one expense at a time.

Unused 529 funds may also offer added flexibility. Under current guidance, certain amounts may be rolled from a 529 plan into a Roth IRA for the beneficiary, provided applicable limits, lifetime caps, and account-age requirements are met. This may provide a long-term option when all funds are not ultimately needed for education.

Scholarships and Potential Tax Consequences

Scholarships can reduce the amount a family must pay out of pocket, but how the funds are used matters for tax purposes. Scholarship money used for tuition, required fees, and course-related materials is generally tax-free. Amounts used for expenses such as room and board may be taxable to the student.

In some circumstances, the way scholarship funds are allocated can affect whether an education credit is available. Allowing part of a scholarship to be treated as taxable income may leave enough qualified education expenses available to support a larger credit. This type of decision requires a careful review because the rules are interconnected.

A larger scholarship does not always produce the most favorable overall tax outcome by itself. Families should look at how scholarship dollars are applied, how much remains for qualified expenses, and whether a credit may be available before making assumptions about the best filing approach.

Student Earnings and Student Loan Interest

College students often earn money from part-time employment, internships, freelance projects, or other work. Depending on the amount and type of income received, a student may need to file an individual tax return even if the parents claim that student as a dependent.

Income from freelance work, gig work, or self-employment deserves special attention because it may create additional tax obligations. Even when a return is not required, filing may still be worthwhile if the student is due a refund.

Families that pay qualifying student loan interest may also be eligible for a deduction of up to $2,500, subject to income limitations. This deduction can help reduce some of the longer-term financial impact of higher education and should be considered as part of the overall tax review.

Why College Tax Planning Should Be Coordinated

College-related tax decisions rarely exist in isolation. Dependency status, scholarships, education credits, 529 withdrawals, student income, and loan interest can all influence one another. A decision in one area may limit or expand an opportunity in another.

Reviewing each item separately may result in overlooked benefits or unintended tax consequences. A coordinated review can help a family use available tax advantages appropriately while staying aligned with current requirements.

Families preparing for a child’s college education can benefit from reviewing their options before filing. Kevin P. Ellis, CPA can help evaluate the interaction between education expenses, savings plans, credits, and student income so families can make informed decisions and avoid unnecessary surprises.