The government likes it when you improve yourself- that’s why they’ve created Education tax credits. You can get credit on your federal income tax return if you paid for college. There are some rules, however, so read on to find out if your education expenses qualify for a tax credit.
Types of Education Credits
There are two types of credits you can claim on your tax return. One is for attending college towards a degree. The other is for taking courses that help you with your job. You must choose one or the other per student. You cannot claim both education credits for the same person during the same tax year.
- The American Opportunity Credit. This is for students working towards a degree. It’s available for 4 tax years (the standard length of time to get a bachelor’s degree).
- The Lifetime Learning Credit. This is for courses that lead to job skills. Student doesn’t have to be working towards a degree.
The American Opportunity Credit
There are some rules and limits to both credits. Let’s take a look at the American Opportunity credit first. This one applies to many parents who have dependents in college.
You can get up to $2500 credit per student. Parents: that means if you have two kids in college and each is enrolled in a degree program at a qualified college, you can claim up to $5000 credit on your federal tax return.
If you are married filing jointly and wish to claim the American Opportunity credit, your modified adjusted gross income cannot be more than $180,000.
If your American Opportunity credit winds up totaling more than you owe in taxes, 40% of your credit can actually be paid out to you in the form of a refund. This makes it called a refundable credit. The Lifetime Learning credit is not refundable.
If the student has a drug felony the American Opportunity credit cannot be applied to his or her education expenses.
This credit covers not only tuition but also things like lab fees and books.
The Lifetime Learning Credit
Did you take a course this year so you could get a better job? Or did you take a class that would make you better at your present job? Get credit on your tax return with the Lifetime Learning credit. The government likes it when we improve ourselves at any age, not just during college years.
If you make $62,000 or less and take a class to improve your career, you can claim up to $2000 on your federal income tax return. It allows you to claim a credit for 20% of qualified expenses relating to job-related classes you took during the tax year. Any expenses over $10,000 and the credit doesn’t apply anymore. In other words,there’s a limit on the credit: 20% of expenses up to $10,000 or a limit of $2000 credit on your tax return.
Unlike the American Opportunity credit, this one caps off at a dollar amount ($2000) no matter how many dependents you claim the credit for. Also unlike the other credit, a drug felony does not disqualify the student for this credit.
What about the School? How Does it Qualify?
The educational institution must be accredited. It can be public or private, even nonprofit. It can be a vocational school or a college/university. It must be postsecondary, which means anything after high school.