This just in: College is expensive. And whether you’re a student yourself or supporting your spouse or dependent child through school, any break you can get helps.
Fortunately, the IRS offers a couple of education tax credits that can ease the financial burdens of college. In other words, these are incentives specifically for students and their parents that can lower the amount of taxes you owe for the year.
Here’s what you need to know about the American Opportunity Tax Credit and the Lifetime Learning Credit, as well as how to determine whether you or your family is eligible.
What Is the American Opportunity Tax Credit (AOTC)?
The American Opportunity Tax Credit, or AOTC, is a tax incentive designed to help offset the cost of undergraduate degrees. Qualified students, their spouses or parents who claim their child as a as dependent can earn a maximum annual credit of up to $2,500 per year, per student. Here’s how it breaks down:
- 100% of the first $2,000 of qualified educational expenses, including tuition and fees as well as books, supplies, and equipment needed to complete courses.
- Up to 25% of the next $2,000.
That comes out to a total possible credit of $2,500.
However, if the credit brings down the total amount of tax you owe the government to $0, you can only have 40% of the remaining credit, or up to $1,000, issued to you as a refund. And it’s only available to those in their first four years of college — sorry, super seniors.
To be eligible for the AOTC, the student must:
- Be pursuing a degree or a credential — that is, auditing classes or taking a few courses for your plain old edification won’t cut it.
- Be enrolled at least half time for at least one academic period, be it a semester, quarter or even a summer session.
- Not yet have finished a four-year degree.
- Not have claimed the AOTC — or the Hope credit, as it used to be called — for four tax years already.
- Not have a felony drug conviction.
You must also have a valid taxpayer identification number on or before the date of filing, and earn less than the specified modified adjusted gross income limits. For 2019, these limits are:
- $80,000 or less for single filers to get the full credit.
- $160,000 or less for those married and filing jointly to get the full credit.
- If you earn up to $90,000 or $180,000, respectively, you may still be eligible for a reduced credit.
To claim the AOTC, you’ll need to get a Form 1098-T Tuition Statement from your school. You’ll then need to fill out Form 8863 and include it with your return at tax time.
What Is the Lifetime Learning Credit (LLC)?
Like the AOTC, the Lifetime Learning Credit, or LLC, is a tax credit you can earn to help offset the cost of qualified higher educational expenses. Unlike the AOTC, the Lifetime Learning Credit only covers tuition, fees and other enrollment-related costs; books and supplies are excluded.
But this one’s available not only for the first four years of undergrad, but also for graduate and professional degree courses — supporting a lifetime of learning, just as its name implies. There’s no limit to how many years you can file for the credit, which makes it a great option for those considering a midlife career change or taking courses to increase and improve their skills.
That said, this credit can only be claimed once per year per family or individual taxpayer, whereas the AOTC can be claimed per student. (More on that below.)
The Lifetime Learning Credit provides eligible students a credit of up to $2,000 per tax return. (Again, the tax-speak specifics: It’s up to 20% of the first $10,000 of qualified educational expenses.)
However, if the Lifetime Learning Credit brings your tax bill to $0, you won’t receive a refund for the remaining amount.
Here are the eligibility requirements for the credit:
- You must be paying for qualified expenses related to higher education, like tuition.
- Those educational expenses must be paid for a student who’s enrolled at an eligible institution.
- That student must be you, your spouse or your dependent.
The Lifetime Learning Credit is subject to the following income limits in 2019:
- $58,000 or less for single filers to get the full credit.
- $116,000 or less for joint filers to get the full credit.
- If you earn between $58,000 an $68,000 as a singleton or up to $136,000 as a married couple, you may qualify for a partial credit.
Just as with the AOTC, you’ll need to get a tuition statement from your school and file Form 8863 at tax time.
Am I Eligible for One of These Education Tax Credits — or Both?
Still not sure you’re eligible for either of these education tax credits? What if you meet the requirements for both?
Unfortunately, you can’t claim both the Lifetime Learning Credit and the AOTC on a single child. Parents can claim the AOTC on multiple children, and you can claim the LLC during the same year, but you can only claim the LLC once — and not on a kid you’ve already claimed the AOTC for.
In other words, the AOTC is a per-student tax credit, while the Lifetime Learning Credit is a per-taxpayer tax credit. That said, there’s another, easier way to figure out exactly what you and your family are eligible for.
Although it’s not exactly known for its speediness or cutting-edge technological advances, the IRS is slowly but steadily moving into the world of the 21st century — and has created an interactive app to help you determine if you qualify for either of these educational tax credits. It’ll also let you know if you can claim a deduction for tuition and fees.
And if you’re paying sky-high tuition bills, it’s well worth sitting down for a few minutes with your paperwork and seeing if you can get a break this April. Just one word to the wise: Make sure you’re actually eligible, or you could get audited and be forced to repay any credit you erroneously received with interest. You might also be banned for claiming the credit for up to a decade.
Now, if only they’d come up with an app that could do all your homework for you…
Jamie Cattanach’s work has been featured at Fodor’s, Yahoo, SELF, The Huffington Post, The Motley Fool and other outlets. Learn more at www.jamiecattanach.com.