Table of Contents
September 28th, 2022
TOPIC: Education Tax Credits
This guide will educate you on education tax credits. If you or someone you know goes to college, they can receive tax breaks to continue their education.
This blog will show you how!
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What are Education Tax Credits?
If you are pursuing higher education, you may be eligible for some tax relief.
The Government loves to encourage people to be educated and contribute to society.
One of the ways it does this is by offering education credits to help with the high cost of higher education by reducing the amount of tax owed on your tax return.
What Tax Credits Are Available For Students?
There are two kinds of education credits that the IRS offers. One is the American opportunity tax credit (AOTC), and the other is Lifetime Learning Credit (LLC)
Both of these credits have their own specific eligibility requirements.
Even so, as education credits, there are some general eligibility requirements they both share.
How Do I Qualify For Education Tax Credits?
In general, there are three requirements you must meet even to consider claiming education tax credits.
- You must be enrolled at an eligible educational institution.
- You, your dependent, or a 3rd party pay qualified education expenses for higher education.
- The eligible student is yourself, your spouse, or a dependent listed on your tax return.
What is AOTC?
American opportunity tax credit (AOTC) is a credit that helps cover qualifying education expenses.
It is a credit for students’ first four years of higher education.
How Can I Be Eligible For AOTC?
Here are the requirements to be eligible for AOTC:
- You must be pursuing an actual degree or trade school credential
- Be enrolled at least half-time for at least one academic period. (i.e., one semester, trimester, quarter, etc.)
- You must not have completed four years of college.
- The student must not have claimed AOTC credit in the past four years.
- You cannot claim the credit if your income is over $90,000 ($180,000 for joint filers).
- The student will not qualify for the credit with any felony drug convictions.
How Much Credit Can I Receive From AOTC?
A student can receive a maximum of $2500 tax credit.
If the credit brings the amount of tax you owe to zero, you can have up to $1,000 refunded.
What is LLC?
The Lifetime Learning Credit (LLC) is for tuition expenses you pay while enrolled in a college or university.
Unlike AOTC, this credit has no limit on the maximum years you have to be eligible for tax relief.
This tax credit can be used by undergraduates, graduates, or professionals.
Note: This credit can also be used for courses designed to help professionals improve their job skills.
How Can I Be Eligible For LLC?
Here are the requirements to be eligible for LLC:
- Be enrolled or take courses at an eligible educational institution.
- Take higher education courses to get a degree or other recognized education credential or improve job skills.
- Be enrolled for at least one academic period.
- You will not be disqualified for any felony drug convictions.
- You can’t claim the credit if your income is $69,000 or more ($138,000 or more if you file a joint return).
How Much Credit Can I Receive From LLC?
The maximum you can get is $2,000 per student.
No portion of the LLC is refundable, which is the only downside of the LLC.
How Do I Claim Education Tax Credits?
To Claim these credits, you must ask for Form 1098-T, a tuition statement, from your institution.
It is common for you to receive this form from your school by January 31st.
Summary
Suppose you’re pursuing a degree in higher education or are attending classes at a university to improve your job skill.
In that case, you might be eligible for education tax credits.
There are two education tax credits available. These credits have different eligibility requirements but can save you hundreds if not thousands off your tax bill.
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