Education Credit

You can qualify for an education credit if you paid the cost of higher education. If eligible, it reduces the amount of taxes you owe on your return and could lead to a refund. There are two education credits: the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC).

There are additional rules for each credit, but you must meet all three of the following for both:

• You, your dependent or a third party pays qualified education expenses for higher education
• An eligible student must be enrolled at an eligible educational institution
• The eligible student is yourself, your spouse or a dependent you list on your tax return

American Opportunity Credit (AOTC)

You can save up to $2,500 per eligible student in tax for education expenses.

To be eligible for AOTC, the student must:

• Aim for a degree/education credential
• Eligible to participate in the federal student aid program
• Be enrolled at the beginning of the academic period for at least half of the time
• Not finish the first four years of higher education
• Not claim either the AOTC or the former Hope credit over four tax years
• At the end of the tax year, they did not have a felony drug conviction

Lifetime Learning Credit (LLC)

The LLC is a non-refundable credit for students who are attending all years of post-secondary education and/or for courses to acquire or improve job skills. This means that though the credit will reduce your tax burden outright, it cannot give you any money back in the form of a refund.

Additionally, it is not required for a student to be pursuing a degree or other recognized education credential. Unlike the American Opportunity Credit, which you can claim for no more than four tax years, there is no limit on the number of years you can claim the Lifetime Learning credit.

However, it must be an eligible institution in the federal student aid program. Taxpayers must also attend at least one course during the year. The maximum benefit of the credit is $2,000. The credit covers tuition, fees, books, and supplies you must purchase from the school. If you paid qualified tuition fees, you will receive form 1098-T to report it towards your education credit.

Be aware that you can only choose one education tax benefit per student. In figuring your taxes, make sure that neither the Tuition and Fees Deduction nor the American Opportunity Credit gives you a bigger benefit.

Our system automatically determined if the Lifetime Learning Credit can be applied or if it would be in your best interest to claim the Tuition and Fees Deduction or the American Opportunity Credit.

Click here for more information about the education credits.

This entry was posted on Thursday, November 19th, 2020 at 8:58 pm and is filed under Credits. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.