Tax Credits To Help Cover Costs of Higher Education

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Whether your child attends trade school, private college, or public university, you already know that higher education in the United States is expensive. The good news is that many taxpayers are able to take advantage of two education tax credits to help offset these costs: the American Opportunity Tax Credit and the Lifetime Learning Credit. Taxpayers, their spouses, or their dependents who take post-high school coursework, may be eligible for this tax benefit.

How the Credits Work

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

Key Things to Know

The American Opportunity Tax Credit is:

  • Worth a maximum benefit of up to $2,500 per eligible student.
  • Only available for the first four years at an eligible college or vocational school.
  • For students pursuing a degree or other recognized education credential.
  • Partially refundable. People could get up to $1,000 back.

The lifetime learning credit is:

  • Worth a maximum benefit of 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.

Claiming the Credit

Taxpayers can use the Interactive Tax Assistant tool on IRS.gov to figure out if they’re eligible for either of these credits. If eligible, taxpayers who paid for higher education in 2021 can see these tax savings when they file their tax return. To claim either credit, taxpayers should complete Form 8863, Education Credits, and file it with their tax return.

Taxpayers should keep in mind that although there may be four academic years, there are five tax years. As such taxpayers can take advantage of both the American Opportunity Tax Credit (four tax years) and the lifetime learning credit (the fifth tax year), if eligible.

Don’t hesitate to call the office if you have any questions about these and other tax credits that could reduce your tax bill this year.

Any accounting, business, or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, we would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.