Education Tax Credits Explained

Education Tax Credits Explained

The beginning of school has arrived and it’s a good time to learn about the tax benefits that can help you offset qualifying education costs. If you’re paying education costs for yourself, a spouse, or a dependent, you may be eligible to save some money with education tax credits.

American Opportunity Tax Credit

 

The American Opportunity Tax Credit (AOTC) is:

  • Worth a maximum benefit of up to $2,500 per eligible student.
  • Only for the first four years at an eligible educational or vocational school.
  • For students pursuing a degree or other recognized education credential
  • Partially refundable. You can potentially get up to $1,000 back.

Lifetime Learning Credit

The Lifetime Learning Credit (LLC) is:

  • Worth up to $2,000 per tax return, per year, no matter how many students qualify.
  • Available for all years of post secondary education and for courses to acquire or improve job skills.
  • Available for an unlimited number of tax years.

 

To claim the AOTC or LLC, use Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits). Additionally, if you claim the AOTC, the law requires you to include the school’s Employer Identification Number on this form. Here are a few more facts to add to your notes:

  • You’re required to have Form 1098-T, Tuition Statement, to be eligible for an education benefit. You receive this form from the school you attended. There are exceptions. See Publication 970, Tax Benefits for Education, for details.
  • You may use only qualified expenses paid to figure a tax credit. These include tuition and fees and other related expenses for an eligible student.
  • Eligible educational schools are those that offer education beyond high school. These expenses include most colleges and universities.
  • You may only claim qualifying expenses in the year paid.
  • You can’t claim either credit if someone else claims you as a dependent.
  • You may need to reduce the amount of your credit based on the amount of income you receive.
  • You can’t claim both the AOTC or LLC for the same student or for the same expense in the same year.

Additional Resource: https://www.irs.gov/newsroom/tax-benefits-for-education-information-center

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