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Paying for Higher Education? Check Out These Two Tax Credits!

We don't need to tell you how expensive it is to pursue a higher education—you're living it. But did you know you may be eligible to get some relief on your tax returns this year? 

The IRS currently offers two tax credits for higher education that may reduce the taxes you owe. These credits are the American Opportunity credit and the Lifetime Learning credit.

American Opportunity Credit

This tax credit grants you up to $2,500 per eligible student. (Technically, it's 100% of your first $2,000, plus 25% of the next $2,000, with $2,5000 being the maximum credit.) This credit is also partially refundable (up to 40%), so you still receive money even if you don't owe any taxes. Here's what else you need to know:

  • Income limit: $180,000 if married and filing jointly; $90,000 if filing as single, head of household, or a widow(er)
  • Multiple credits allowed?: If you're paying for multiple students' undergraduate education, you can claim a separate credit for each student on the same tax return.
  • Expenses covered: Tuition and enrollment fees, books, materials, supplies, and other educational tools (even if you don't purchase them from the educational institution)
  • Years eligible: For the first 4 years of post-secondary education ONLY
  • Years credit is available: 4 tax years per eligible student ONLY
  • Degree requirements: Student must be seeking an undergraduate degree or other recognized education credential.
  • Minimum course requirements: Student must be enrolled half-time for one academic period during the current tax year.
  • Payment timeline requirements: Eligible expenses must have been paid during the current tax year (even if they're going towards the first semester of the following year). 

Lifetime Learning Credit

The Lifetime Learning credit is a little different from the American Opportunity credit in that it applies to any education or job training course, not just an undergraduate degree. This credit grants you a maximum of $2,000 per year, no matter how many students you're paying for. (The IRS credits 20% of your total expenses, with expenses maxing out at $10,000 per tax year.) Here are some more details:

  • Income limit: $130,000 if married and filing jointly; $65,000 if filing as single, head of household, or a widow(er)
  • Multiple credits allowed?: No. Only one Limetime Learning credit is allowed per tax return.
  • Expenses covered: Tuition and enrollment fees; any other course-related expenses (books, materials, supplies, etc.) are only covered if they're paid directly to the educational institution.
  • Years eligible: All years for any post-secondary education or training courses
  • Years credit is available: Unlimited
  • Degree requirements: Student does not need to be seeking a specific degree or recognized education credential. It can be for any form of post-secondary education, like a graduate degree or a single course that improves job skills.
  • Minimum course requirements: Student must be enrolled in one course during the current tax year.
  • Payment timeline requirements: Eligible expenses must have been paid during the current tax year (even if they're going towards the first semester of the following year). 

Of course, credits and refunds can get complicated, so if you have any questions at all about your tax credit options, give us a call! Taxation Solutions, Inc. is here to help you claim the credits you deserve while keeping the process nice and easy. We're the team to trust in Charlotte and beyond!