For those pursuing post-high-school education, the IRS offers two potential education tax credits that can reduce your tax liability and possibly even make you eligible for a refund. It’s important to know if these credits apply for you and your family.
What are the types of education tax credits?
The two credits are the American Opportunity Tax Credit, or AOTC, and the Lifetime Learning Credit, or LLC.
The AOTC applies to the first four years of higher education and provides a maximum annual credit of $2,500 per eligible student. If applying the credit brings your tax due down to zero, you can get 40 percent of the remaining credit amount, up to $1,000, as a refund.
The Lifetime Learning Credit, on the other hand, can be used for undergraduate, graduate and professional degrees, including courses to help acquire or improve job skills. This credit has no limit on the number of years in which it can be claimed, and provides a maximum of $2,000 annually.
Who is eligible for education tax credits?
Both educational tax credits carry the same basic requirements:
You, your spouse or a dependent you list on your return must be enrolled at an eligible educational institution and must pay qualified expenses for higher education.
There are more guidelines depending on which type of credit you are looking at, but those are the basics.
Who is not eligible for education tax credits?
There are a few cases in which you cannot claim an education tax credit:
- If someone else lists you as a dependent on their tax return, even if they are not claiming educational tax credits
- If you are married, filing separately
- If you already claimed or deducted a higher education benefit for the same student or same expense
- You or your spouse were a non-resident alien at any time during the tax year and did not choose to be treated as a resident alien for tax purposes
If you do not fall into any of those categories and have qualified education expenses, you may be eligible for one of the two credits.