Feature Articles: Taxes
Education credits can help at tax time
Reviewed and adapted with special permission from the IRS by: Brenda Procter, M.S., State Specialist & Instructor, Personal Financial Planning and Debby Whiston, M.S., Family Financial Education Specialist & County Program Director, University of Missouri Extension
Are you footing the costs of higher education for yourself or a dependent you claim for an exemption on your tax return? The IRS says that education tax credits can help offset those costs. The American Opportunity Credit and the Lifetime Learning Credit are education credits you may be able to subtract in full from your federal income tax, not just deduct from your taxable income.
American Opportunity Credit
This credit modified the Hope Education Credit and is available for the first four years of postsecondary education, such as college or vocational school, and it can be worth up to $2,500 per eligible student per year. It does not apply to graduate and professional-level programs. Each student must be enrolled at least half-time for at least one academic period beginning during the year. You can claim 100% of the first $2,000 of tuition, fees and course materials paid during the taxable year, plus 25% of the next $2,000 of tuition, fees and course materials paid during the taxable year. Forty percent of the credit is refundable for taxpayers, which means it comes to you whether you owe taxes or not (you could get up to $1,000 added to your refund). The threshold for the American Opportunity credit is phased out between a modified adjusted gross income of $80,000 to $90,000 ($160,000 to $180,000 if married, filing jointly).
Lifetime Learning Credit
The lifetime learning credit helps parents and students pay for post-secondary education, and you may be able to claim a lifetime learning credit of up to $2,000 for qualified education expenses paid for all students enrolled in eligible educational institutions. However, a taxpayer cannot claim both the American Opportunity Credit and Lifetime Learning Credit for the same student in one year. The good thing about the Lifetime Learning Credit is there is no limit on the number of years the credit can be claimed. This may be particularly helpful to graduate students, students who are only taking one course and those who are not pursuing a degree. Also, the modified gross income limits to claim the credit have been raised to $61,000 if single, head of household, or qualifying widow(er) and $122,000 if married filing jointly.
You cannot claim both the American Opportunity and Lifetime Learning
Credits for the same student in the same year.
To qualify for either credit, you must pay post-secondary tuition and fees for yourself, your spouse or your dependent. The credit may be claimed by the parent or the student, but not by both. If the student was claimed as a dependent, the student cannot claim the credit.
The American Opportunity Credit is not allowed for a student
with a felony drug offense conviction.
Use Form 8863 to claim either the American Opportunity or Lifetime
For more information, see Publication 970, Tax Benefits for
Education. Download it from IRS.gov
or order it by calling the IRS toll free at 1-800-TAX-FORM (1-800-829-3676).
Source: IRS. (2011). Tax benefits for education: Information center. Retrieved from http://www.irs.gov/newsroom/article/0,,id=213044,00.html
Last update: Monday, March 05, 2012