If you think that education credits are just for sending your children to college, think again—the credits are available to you, your spouse (if you are married), and your dependents. Even if you or your spouse is only attending school part time, you still may qualify for a tax credit.
There are two education-related credits available: the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). For either credit, the student must be enrolled in an eligible educational institution for at least one academic period (semester, trimester, or quarter) during the year. An eligible educational institution is any accredited public, nonprofit, or proprietary postsecondary institution that can participate in the U.S. Department of Education’s student aid programs.
The credits phase out for higher-income taxpayers who are married filing jointly or who are unmarried. Those who are married filing separately do not qualify for either credit.
The following table provides the qualifications and details for both credits:
|Allowance Period||First 4 years of postsecondary education||Any postsecondary education for any number of years|
|Enrollment||Must be considered at least a half-time student by the educational institution||Not required to be enrolled at least half-time|
|Program Type||Must be pursuing a program leading to a degree or another recognized educational credential||Not required to be enrolled for the purpose of obtaining a degree or other credential|
|Credit Applied||Per student||Per family|
|Credit Amount||100% of the first $2,000 and 25% of the next $2,000 in qualified expenses||20% of up to $10,000 in qualified expenses|
|Credit Refundable?*||40%||No, can only reduce tax|
|Qualified Expenses||Qualified tuition and related expenses, which include books, supplies and equipment required for enrollment or attendance||Qualified tuition and related expenses; the books, supplies and equipment must be purchased from the educational institution|
|High-Income AGI Phase-out Ranges||Married Filing Jointly: $160,000 to $180,000 Married Filing Separately: No credit allowed Unmarried: $80,000 to $90,000|
|Claim Both Credits on Same Return?||Yes, but not for the same student|
*Generally, credits are nonrefundable, meaning that they can only be used to offset your tax liability; any amount exceeding your current-year tax liability is lost. However, unlike other credits, the AOTC is partially refundable in most cases.
Many individuals who both work and attend school can be enrolled less than half-time and still qualify for the LLC.
Another interesting twist to education credits is that the taxpayer who qualifies for and claims the student’s exemption for the year gets the credit—even if someone else pays the expenses.
Thus, for example, even if a noncustodial parent pays a child’s college expenses, the custodial parent gets the credit if he or she is otherwise qualified. The same applies when grandparents help pay for their grandchild’s education: the grandparents do not qualify for the credit unless they, and not the child’s parents, claim the student as a dependent.
Generally, the educational institution sends a Form 1098-T to the taxpayer (or dependent). This includes the information necessary to complete the IRS form and claim the credit. Sometimes the 1098-T needs to be retrieved online from the educational institution. The law requires the taxpayer to have this 1098-T in hand to claim either of the credits, but credit can be claimed for other qualified expenses.
The qualifying expenses for the AOTC and LLC differ in many cases. See the table below for which expenses qualify for the credits.
DEDUCTIBILITY OF EXPENSES
|Apprenticeship Programs Post-2018 – Fees, Books, Supplies, Equipment||Required to participate in an apprenticeship program registered and certified with the Secretary of Labor under Section 1 of the National Apprenticeship Act.||No||No|
|Computer||If needed for attendance at the educational institution||See Notes||No|
|Computer Software||If needed for attendance at the educational institution. Software for sports, games, hobbies only if educational in nature||See Notes||No|
|Course Materials and Supplies||For the LLC, only if purchased from the institution as a condition of attendance||Yes||See Notes|
|Equipment||If required for enrollment or attendance||Yes||No|
|Fees||If required for enrollment or attendance||Yes||Yes|
|Fees, Bundled||Must be allocated between qualified and personal fees||Yes||Yes|
|Fees, Non-Academic||Only if they are required to be paid to attend||Yes||Yes|
|Fees, Student Activity||If paid to the educational institution||Yes||Yes|
|Room & Board||–||No||No|
|Tuition: Higher Education||–||Yes||Yes|
|Tuition: Hobbies, Sports, Games, Non-Credit Courses||If part of student’s degree program for AOTC and LLC. For LLC if required to acquire or improve job skills.||See Notes||See Notes|
If you have questions about how these education tax credit provisions apply to you or if you are missing out on credit, please give our office a call.