Federal Tax Credits for College
The Lifetime Learning Credit is for those who attend college classes. It allows them to get a 20% tuition expenses credit with a phase out limit of $2,000 in tax credits on their first $10,000 of tuition expenses. This credit is for you, your spouse, or your dependents that are in an eligible school and you had to pay the expenses for them.
Educational Institutions that Qualify
Accredited schools are considered eligible. Additionally, post-secondary schools and vocations schools qualify too. If the school accepts federal student aid programs via the US Department of Education, you can claim the Lifetime Learn tax credit for the tuition that you paid.
Expenses That Qualify
Expenses that are eligible for this credit include the fees and tuition that were paid for schooling. However, anything outside of that such as health, insurance, room and board are not eligible for the credit.
Additionally, you have to be the person who is responsible for covering the cost. You also have to reduce your qualifying expenses by the amount of assistance you received from various things such as grants or reimbursements or scholarships.
Who Is Eligible for This Credit
You, your spouse or dependents claimed on your return qualify for the Lifetime Learning tax credit for eligible tuition costs. Your college student is not considered your dependent if they are the ones who claim the credit on their federal tax return. In the event that you do not have a dependent but you pay their college expenses you are not eligible for the tax credit. $10,000 is the collective annual cap. You can't claim a credit for each student in excess of $2,000 per tax return ($10,000 X 20%). Married filing separate status taxpayers can not claim the Lifetime Learning tax credit.
Income Limitations on the Credit
The 1098-T tax form can be obtained from the student’s college or will be sent in January to the student’s address. This form tells the IRS the student or the student’s parents may be eligible for an education tax credit up to $2,500. Students should also obtain a calendar year payment and charges transcript from the college to verify payments made during the calendar tax year. This transcript will prove the education costs have been paid during the tax year so that the Lifetime Learning tax credit can be claimed.
International students on F-1 or J-1 visas cannot claim education tax credits because during first 5 years in US they are considered nonresident aliens and not eligible for education tax credits. Students of overseas parents who have maintained their US citizenship can claim education tax credits. If the student is claimed by their overseas parents the parents can claim the education tax credits. Many overseas parents make too much income to claim education credits because foreign earned income exclusions are added back when calculating modified adjusted gross income.
Lifetime Learning tax credits are claimed when the four year period for the American Opportunity tax credit has been exceeded, for periods when the student is not full time. Many high school students are taking Advance Placement (AP) courses through an eligible educational institution as a means to earn college credits at an economical price. These costs memorialized on a Form 1098-T may qualify for Lifetime Learning tax credits. Continuing Professional Education not reimbursed by your employer memorialized on a Form 1098-T may qualify for Lifetime Learning tax credit if taken at a qualified higher education institution.
Tax laws change periodically and you should always consult with a tax professional for the most up-to-date advice. The information contained in this article is not intended as tax advice and it is not a substitute for tax advice.