There are two student credits available to help students offset the high costs of higher education.
The American Opportunity Credit and the Lifetime Learning Credit.
Remember that tax credits are often more valuable than deductions.
Because the former reduce your tax bill dollar by dollar.
While deductions only reduce your taxable income.
Let’s see what these student credits are about.
The American Opportunity Credit
The American Opportunity Credit is a partially refundable tax credit.
Allow up to 40 percent of the credit as a tax payment if you qualify to claim it.
Of the two tax education credits currently available, the American Opportunity Credit is the most valuable.
Here is what you need to know about this student credit:
- It applies only to the first four years of post-secondary education (university, college, vocational school, non-profit and for-profit institutions).
- You can claim up to $2,500 per eligible student, per year.
- Covers 100% of the first $2,000 of qualified tuition, required fees and qualified expenses, plus 25% of the next $2,000.
- 40% of the credit is refundable, so you can receive $1,000 per eligible student as a tax refund. Even if you don’t owe taxes.
- Each student for whom you apply for credit must have been enrolled at least half-time for at least one academic period that began during the Tax Year.
- For fiscal year 2019, the modified adjusted gross income limit (MAGI) is $180,000 if filing jointly filing married. And $90,000 for eligible singles, heads of household, or widowers. ($160,000 and $80,000 for fiscal year 2018).
- You can claim the credit for the educational expenses for you, your spouse, or your dependent. But, you can’t take the credit for yourself if you are claimed as someone else’s dependent.
- Qualified expenses include tuition and required fees, books, supplies, equipment, and other required course materials (but not room and board).
- Any felony drug conviction at the end of the fiscal year disqualifies the student from receiving the American Opportunity Credit.
The Lifetime Learning Credit
If you, your husband, or your dependent does not qualify for the American Opportunity Credit. You can still claim the Lifetime Learning Credit .
This is a non-refundable tax credit.
Here is what you need to know about this educational credit:
- Lifetime Learning Credit applies to undergraduate, graduate, and professional degrees. And even graduate courses that help improve your job skills.
- You can claim up to $2,000 per eligible student, per year.
- It is available for all years of post-secondary education. And, also for adult and continuing education courses. There is no limit on how many years you can claim the credit.
- There is no minimum enrollment requirement.
- Your credit amount will be 20% of the first $10,000 of combined tuition and post-secondary fees you paid. Up to a total of no more than $2,000 (per year, not per student).
- For 2019, the total credit limit on modified adjusted gross income (MAGI) is $136,000 if you are married and filing a joint return; $ 68,000 if you are single, head of household or widowed. ($110,000 and $55,000 for fiscal year 2018).
- The Lifetime Learning Credit is non-refundable, so you will not be paid in a refund, it simply decreases your tax liability.
- You can claim the qualified expense credit you paid for yourself (if you weren’t claimed as a dependent), your spouse, or your dependent.
- Qualified expenses include tuition, fees, books, supplies, equipment, and other course materials, as needed (does not include room or board).
- Convictions for drug offenses do not make the student not qualify for Credit.
Can I claim both credits?
You cannot claim the Lifetime Learning Credit and the American Opportunity Credit for the same student in the same year.
But you can claim one student credit for one and the other student tax credit for another student.
Remember that the American Opportunity Credit is generally the most valuable tax credit.
But, it’s only good for the first four years of higher education and has stricter enrollment requirements.
If you qualify for the Lifetime Learning Credit, you can use it for any number of years (but it has a stricter income restriction).
What is the most beneficial for me?
When we take care of your taxes, we will help you know what student tax credit you qualify for.
Also rest assured that we will apply the most beneficial for you.
We will then generate the correct forms for you to claim the student tax credit with your return.
A possible scenario
You could claim the American Opportunity Credit for each of your children.
In the meantime claim the Lifetime Learning Credit for you and your spouse.
Or you could claim the American Opportunity Credit for all four, if everyone qualifies.
But, remember that you cannot claim both credits for the same person in the same year.
How much can I claim for student credit?
Depends on the type of credit, if it is American Opportunity Credit, which is a refundable credit
The most you can get is $2,500.00.
However, it does not mean that everyone receives $2,500.00
That is the maximum.
If it is Lifetime Learning , the maximum is $2,000.00.
What do I need to take advantage of student tax credits?
In order to claim student credits, you must have received the Form 1098-T Enrollment Statement for yourself or your dependent.
And it must be from an eligible educational institution in the United States or abroad.
Generally, you or your dependent must receive Form 1098-T by January 31.
Eligible educational institution
An eligible educational institution is a school that offers higher education beyond high school.
It is any college, university, vocational school, or other post-secondary educational institution.
Eligible to participate in a student aid program run by the US Department of Education. USA
This includes most public, nonprofit postsecondary institutions.
As well as private for-profit accredited.
If you’re not sure if your school qualifies, you can ask or see if it’s listed here.