The U.S. government recognizes the expenses associated with attending college and offers two tax credits to help offset tuition and other education expenses. Tax credits are better than a deduction, because the complete amount of the credit is applied to your taxes due, not just subtracted from your taxable income. You may claim only one of the available credits per student in any year.
American Opportunity Credit
The American opportunity credit allows for a credit of up to $2,500 per year for higher education expenses. You can claim 100 percent of the first $2,000 in expenses, and 25 percent of the next $2,000. You can claim this credit by paying for an eligible student's expenses. An eligible student can be yourself, a spouse, or a dependent whom you claim on your tax return. The American opportunity credit can be claimed only for the first four years of college, and the student must be enrolled in at least half of a full-time course load to be eligible.
American Opportunity Credit Eligibility
The American opportunity credit is for taxpayers who meet certain criteria. If you are married filing jointly, your adjusted gross income must be below $180,000, or $90,000 for all other filing statuses, except married filing separately — these filers are not eligible for the American opportunity credit. Also, up to 40 percent of this credit is refundable, meaning you may receive a refund for this amount even if you do not owe taxes.
Lifetime Learning Credit
The lifetime learning credit is a broader-based credit, with more people able to take advantage of it. It provides for a tax credit or up to $2,000 per year for education expenses. This credit does not depend on being enrolled in a certain amount of courses per year, and you can claim the credit for individual courses not part of a degree program. Expenses that you pay for yourself, your spouse or dependents claimed on your income tax return are eligible. No limit exists pertaining to the number of years this credit can be claimed.
Lifetime Learning Credit Eligibility
To claim the lifetime learning credit, you must have an adjusted gross income of less than $122,000 if you are married filing jointly. Married people filing separately do not qualify, and all other filing statuses must have adjusted gross income of less than $61,000 to qualify. This credit is also nonrefundable, meaning that it will only offset the taxes due in that year.
You can still deduct expenses paid for tuition and education, as well as student loans in many cases. While not as beneficial as the tax credits, deductions can still east the cost of college expenses for your family.
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