Getting an education isn’t cheap, and far too many people have a hard time paying for their education. Thankfully, the federal government has developed two different tax credits that can help decrease the amount owed at tax time. These credits, The American Opportunity Credit and the Lifetime Learning Credit help taxpayers who incurred education related expenses, such as tuition, fees, supplies, books, and other necessary equipment. Any personal expenses, like fees, transportation costs, and insurance do not qualify as an eligible expense for the purpose of either tax credit.
Neither tax credit is offered to those who pay their tuition with scholarship funds, grants, or fellowships. Additionally, the credits are dependent upon your income, and there are restrictions on how much you can make annually. The person who claims the credit can’t be claimed as a dependent on anyone else’s return.
The American Opportunity Credit allows taxpayers the opportunity to receive a tax benefit of up to $2,500 for each student that qualifies. The requirements state that the student must be enrolled in school for an entire academic semester at least half-time throughout the tax year. This credit is only applicable to those pursuing an undergraduate degree, but may also cover certain certifications. Anyone convicted of a felony drug crime is not able to receive the credit.
The AOC is refundable by 40%, meaning that even those who don’t owe taxes can get up to $1,000 in a refund by claiming the credit.
The Lifetime Learning Credit is not refundable, although felony drug convicted taxpayers may claim the credit. Also, the LLC doesn’t set limitations on degree or status, so part-time graduate students can qualify for the benefit. Students who are eligible to claim the credit can receive up to $2,000 each year, provided the taxpayer claiming the credit has paid their yearly taxes.
These tax credits don’t make education less expensive, but they can make affording it a little bit easier at tax time.