Education Tax Credits for Back-to-School
Education tax breaks that can help save you money.
If you pay for the cost of higher education for yourself, your spouse, or your dependent child, you may be eligible for a Federal tax credit that can save you money at tax time. This article covers some important facts about education tax breaks.
American Opportunity Tax Credit (AOTC)
The AOTC applies to qualified education expenses for the first 4 years of higher education at an eligible educational institution. You can claim a maximum credit of $2,500 annually per eligible student. 40% of the AOTC is refundable, which means that you can get the remaining amount (up to $1,000) as a tax refund if the credit brings your tax balance to zero.
Lifetime Learning Credit (LLC)
The LLC applies to qualified education expenses for undergraduate, graduate, and professional degree courses at an eligible educational institution. You can claim a maximum tax credit of $2,000 annually per eligible student. There is no limit on the number of years you can claim the LLC. This tax credit is non-refundable.
Education Tax Credit Qualifications
• Qualified Education Expenses — To figure the amount of your tax credit, you may include the qualified education expenses that you paid for an eligible student in the same tax year. These consist of tuition, fees, and other related expenses that are required for enrollment/attendance at an eligible educational institution.
• Eligible Educational Institutions — Eligible schools include most colleges and universities that offer education beyond high school. These also include various vocational schools and other post-secondary educational institutions that participate in a student aid program run by the U.S. Department of Education.
• Foreign Students — Those who are in the United States on an F-1 student visa must typically file a Nonresident Alien Income Tax Return (IRS Form 1040NR). However, you cannot claim an education tax credit unless you elect to be treated as a resident alien for Federal tax purposes. For more information, please refer to IRS Publication 519 (U.S. Tax Guide for Aliens).
To claim the full amount for the AOTC, your modified adjusted gross income (MAGI) must be $80,000 or less if you’re a single filer ($160,000 or less for married couples filing jointly). The AOTC amount will be reduced if your MAGI is over $80,000 but under $90,000 as a single filer (over $160,000 but under $180,000 for married joint filers). You cannot claim the AOTC if your MAGI is over $90,000 for a single filer ($180,000 for married joint filers).
To fully claim the LLC, your MAGI must be $52,000 or less if you’re a single filer ($104,000 or less for married couples filing jointly). The LLC amount will be reduced if your MAGI is over $52,000 but under $62,000 as a single filer (over $104,000 but under $124,000 for married joint filers). You cannot claim the LLC if your MAGI is over $62,000 for a single filer ($124,000 for married joint filers).
• Form 1098-T (Tuition Statement) — You will most likely receive IRS Form 1098-T from your school, which reports your qualified expenses to you and the IRS. Note that some of your qualified expenses (such as textbooks) may not appear on Form 1098-T, but that doesn’t mean you cannot claim those costs as part of your tax credit.
For more information about this topic, please see IRS Publication 970 (Tax Benefits for Education).