Many taxpayers realize that there are tax credits available to them for education expenses. Unfortunately, due to their seeming complexity and unclear rules, many miss out taking full advantage of these credits. Worse still, a lot of people incorrectly take either a larger credit or the wrong credit than what actually applies, causing them to have to pay penalties and interest as well as the amount they owe.
Well, we're here to explain the two education credits and to whom and how they apply. The two credits are the American Opportunity Credit and the Lifetime Learning Credit.
The first thing to understand is that you can only use one or the other of the two available credits in a single tax year. The second tip to remember is that you cannot use either of the credits if you take a tuition and fees tax deduction.
Now onto the credits themselves.
The American Opportunity Credit is available to students in their first four years of post-secondary education credit. It is worth up to $2,500, with up to $1,000 of it being refundable. The credit begins phases out for individuals at $80,000 and $120,000 for those filing a joint return. The student must be enrolled as at least a half-time student for either one semester or quarter in the year. The student must be pursuing either a degree or some other type of credential. Qualified expenses that the credit applies to are tuition, fees, books, supplies and class related equipment.
The Lifetime Learning Credit applies to all post-secondary education and job skills training and there is no requirement for the student to be pursuing a degree or certification. The credit is good up to $2,000 and is not refundable. Expenses the credit applies to are the same as those for the American Opportunity Credit: tuition, fees, books and related equipment. The credit begins to phases out for individual filers at $60,000 and at $120,000 for those filing a joint return.
These credits are very beneficial and it behooves any student or those who have dependents that are students to see if and which credit can help them lower their tax load or even increase the amount of their refund.