Reductions to Qualified Expenses

Before calculating qualified expenses on a tax return, the following tax-free income amounts must be subtracted:

• Employer-provided educational assistance benefits
• Tax-free withdrawals from a Coverdell ESA or from a qualified tuition program
• U.S. savings bond interest excluded from income because it is used to pay qualified higher education expenses
• Certain scholarships and fellowships
• Veteran's educational assistance benefits
• Any other nontaxable payments (other than gifts, bequests, or inheritances) received for educational expenses

Generally, qualified higher education expenses include tuition, fees, room and board, books, supplies, equipment, and other necessary expenses, such as transportation.