Higher Education Tax Credits Available For Certain Taxpayers

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Tax credits can help offset the cost of higher education

Whether it’s online, in-person, part-time or full-time, higher education can be expensive. The good news is there are tax credits that can help offset these costs. These credits reduce the amount of tax someone owes. If the credit reduces tax to less than zero, the taxpayer could even receive a refund.

Taxpayers who pay for higher education in 2020 can see these tax savings when they file their tax return 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 save money on schooling, the American opportunity tax credit and the lifetime learning credit. Taxpayers use Form 8863, Education Credits, to claim the credits.

To be eligible to claim either of these credits, a taxpayer or a dependent must have received a Form 1098-T from an eligible educational institution. There are exceptions for some students.

Here are some key things taxpayers should know about each of these credits.

The American opportunity tax credit is:

  • Worth a maximum benefit of up to $2,500 per eligible student.: 100% of the first $2,000 in qualified expenses; 25% of the next $2,000 of qualified expenses.

  • Only for the first four years at an eligible college or vocational school.

  • For students pursuing a degree or other recognized education credential.

  • 40% of the credit is refundable for most taxpayers.

  • The catch: The credit is phased out at modified adjusted gross income of $160K to $180K (married filing jointly) or $80K to $90K (filing single). You can’t claim the credit if you are claimed as a dependent on another person’s tax return.

The lifetime learning credit is:

  • Worth a maximum benefit of up to $2,000 (20% of the first $10K of qualified expenses) 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.

  • The credit is non-refundable, meaning, if you only receive the credit to the extent you owe taxes.

  • The catch: The credit is phased out at modified adjusted gross income of $116K to $136K (married filing jointly) and $58K to $68K (filing single). You can’t claim the credit if you are claimed as a dependent on another person’s tax return.

More information about these and other federal tax credits at www.irs.gov/credits-deductions-for-individuals.