Many students are deterred from attending college, because of what they believe are insurmountably high education costs. It is important to know, however, that there are now two federal education tax credits can make the costs of higher education for yourself or your children a lot more affordable. The names of the credits are the American Opportunity Credit and the Lifetime Learning Credit, and most students qualify for one or the other.
Qualification criteria are as follows: you must be paying your own postsecondary tuition and fees – or the fees that are incurred by your spouse or dependents. Either the parent or a student can claim the credit, but not both at once. In the case of a student who was claimed as a dependent, it’s the parent who must file for the credit.
Each student is allowed to claim only one of the two available credits in any given tax year. For example, you are not allowed to claim the American Opportunity Credit to pay a portion of your tuition charges, and use the Lifetime Learning Credit to cover the rest of the expenses.
Federal policies do allow for parents to take credit on a per-student, per-year basis; this means that if you are paying tuition for two students in your family, you can claim a credit for each individual who is in school. It is possible that if a family claims two students, one will have the Lifetime Learning Credit while the other uses the American Opportunity Grant.
The American Opportunity Credit can be used to cover up to $2,500 in eligible expenses, per student, with up to forty percent of that refundable, which will decrease tax owed, or increase a family’s refund. The Lifetime Learning Credit, in contrast, is also worth $2,000 but the credit that it offers is limited to the amount of tax you owe, so you will not receive a tax refund.
If you, or someone in your family is considering postsecondary education, be sure to investigate how these two programs may benefit your student.