The tax credits for the education expenses are nothing new. The Internal Revenue Service allows students that are expected to file a federal income tax return to claim certain tax credits for the tuition and other expenses for their education.
There are two education credits students claim. These are the American Opportunity Tax Credit and the Lifetime Learning Credit. In this article, we will explain what these tax credits are and how to claim them on your tax return for tuition expenses.
Note: You cannot claim both of these tax credits. You must pick either one of them. If you can claim both, go with the American Opportunity Tax Credit as it’s refundable.
American Opportunity Tax Credit
Also known as the AOTC is a refundable education credit that has a value of up to $2,500. To claim the American Opportunity Tax Credit, you must meet the following requirements.
- You must be enrolled at least half the time of the academic year.
- You must be pursuing a degree or other education credential.
- You must not have a felony drug conviction at the end of the tax year.
- You must be still in your first four years of higher education at the beginning of the tax year.
AOTC Amount and Refundable
The AOTC is the 100 percent of the first $2,000 paid for higher education, and 25 percent of the next $2,000. This totals the tax credit at $2,500 as maximum. The refundable portion of the credit is 40 percent which is $1,000. So you can get a $1,000 in your tax refund if you can claim the AOTC.
Lifetime Learning Credit
The Lifetime Learning Credit (LLC) is the tax credit for the expenses of higher education expenses. There are no limits on how many times the LLC can be claimed. If you meet the following requirements, you can claim the LLC.
- You or your dependent paid qualified education expenses for higher education.
- You or your dependent paid the education expenses for an eligible student, more on that below.
- The student is you, your dependent, or spouse listed on the tax return.
Student also must be enrolled or taking courses at an eligible education institution, taking higher education courses to get a degree, and enrolled for at least one academic year.
LLC Amount and Refundable
The credit amount is 20 percent of the qualified education expenses with a maximum amount of $2,000. So if you paid at least $10,000 in qualified education expenses, you get up to $2,000 in LLC. Take note that this tax credit isn’t refundable – meaning it won’t add up to your tax refund but reduce tax liability.