With school back in session, parents and students should look into tax credits that can help with the cost of higher education. They do this by reducing the amount of tax someone owes on their tax return. If the credit reduces tax to less than zero, the taxpayer may get a refund.

Taxpayers who pay for higher education in 2019 can see these tax savings when they file their tax returns next year. If taxpayers, their spouses or their dependents take post-high school coursework, they may be eligible for a tax benefit.

There are two credits available to help taxpayers offset the costs of higher education. The American opportunity tax credit and the lifetime learning credit may reduce the amount of income tax owed. Taxpayers use Form 8863, Education Credits, to claim the credits.

To be eligible to claim the American opportunity tax credit, or the lifetime learning credit, a taxpayer or a dependent must have received a Form 1098-T from an eligible educational institution.

The American opportunity tax credit is:

  • Worth a maximum benefit up to $2,500 per eligible student.
  • Only for the first four years at an eligible college or vocational school.
  • For students pursuing a degree or other recognized education credential.
  • Partially refundable. This means if the credit brings the amount of tax owed to zero, 40 percent of any remaining amount of the credit, up to $1,000, is refundable.
  • The lifetime learning credit is:
  • Worth a maximum benefit up to $2,000 per tax return, per year, no matter how many students qualify.
  • Available for all years of postsecondary education and for courses to acquire or improve job skills.
  • Available for an unlimited number of tax years.
  • There are several differences and some similarities between the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC).  You can claim both benefits on the same return but not for the same student or same qualified expenses.
Criteria AOTC LLC
Maximum credit or benefit Up to $2,500 credit per eligible student Up to $2,000 credit per return
Refundable or nonrefundable 40% of credit Not refundable
Limit on MAGI* for married filing jointly  $180,000 $134,000
 

Limit on MAGI* for single, head of household, or qualifying widow(er)

$90,000 $67,000
Can you file married filing separately?  No
Dependent status  Cannot claim credit if you are claimed as a dependent on someone else’s return
Must you or your spouse be a U.S. Citizen or Resident Alien? Yes, unless nonresident alien is treated as resident alien for tax purposes
Number of years of post-secondary education available Only if student hasn’t completed 4 years of post-secondary education before 2019 All years of post-secondary education and for courses to acquire or improve job skills
Number of tax years credit available 4 tax years per eligible student including any years former Hope credit claimed Unlimited
Type of program required Student must be pursuing a degree or other recognized education credential Student does not need to be pursuing a degree or other recognized education credential
Number of courses Student must be enrolled at least half time for at least one academic period beginning in 2019 Available for one or more courses
Felony drug conviction No felony drug convictions as of the end of 2019 Does not apply
Qualified expenses Tuition, required enrollment fees and course materials needed for course of study Tuition and fees required for enrollment or attendance
Whom can you claim the benefit for?
  • You
  • Your spouse
  • Student you claim as a dependent on your return
  • You
  • Your spouse
  • Student you claim as a dependent on your return
Who must pay the qualified expenses?
  • You or your spouse
  • Student
  • You or your spouse
  • Student
Payments for academic periods Made in 2019 for academic periods beginning in 2019 or the first 3 months of 2020

 

Do I need to claim the credit on a schedule or form? Yes, Form 8863, Education Credits Yes, Form 8863, Education Credits