One way to defray expenses, in general, is to claim tax credits such as the child tax credit, earned income tax credit and the disability tax credit if you qualify. Tuition tax credits, college tax credits or student tax credits, such as the American opportunity tax credit, can help you save money on your taxes.
The cost of attending college can be a major financial burden on students and their families. In 2018-2019, the average tuition and fees per year for a four-year degree will total $35,830 at a private institution and $26,290 at an out-of-state public school, according to The College Board. The AOTC offers a tax credit of up to $2,500 for tuition and fees, and it’s available to students and parents of dependent children.
Learn more about who can claim the American opportunity credit and take advantage of often overlooked tax breaks.
What Is the American Opportunity Tax Credit and Who Is Eligible for It?
You can reduce the financial impact of college tuition by immediately decreasing your marginal rates with this tax credit. To qualify for American opportunity credit eligibility, the student must meet these requirements:
- Is actively pursuing a degree at an accredited institution
- Has not finished four years of higher education at the beginning of the tax year
- Is enrolled at least half-time beginning in the tax year
- Has no felony drug convictions
Related: Is College Tuition Tax Deductible?
Can You Claim the American Opportunity Credit If You Are a Dependent?
Unfortunately, if you are being claimed as a dependent on someone else’s tax return, you cannot claim the American opportunity tax credit. Additionally, you cannot claim the lifetime learning credit for the same reason.
What Are the Income Limits for the American Opportunity Tax Credit?
The credit is valid for each student once during the calendar year. The taxpayer who claims the credit must make an adjusted gross income of no more than $180,000 if filing jointly and $90,000 if filing individually. The credit amount is gradually reduced if your modified adjusted gross income is between $80,000 and $90,000 — or $160,000 and $180,000 if you file a joint return. You’re ineligible to claim an American opportunity credit if your MAGI is $90,000 or more — or $180,000 or more if you file a joint return.
All academic periods are eligible for the credit, including summer school, semesters, trimesters and quarters. Room and board, transportation, insurance and medical costs do not qualify for the credit.
How the American Opportunity Tax Credit Is Calculated
The American opportunity credit offers a maximum benefit of $2,500 per year. If the credit reduces a taxpayer’s amount owed completely, 40 percent of the remaining credit — up to $1,000 — is refundable. This means you can get a refund even if you owe no tax.
If you meet the income requirements for the full credit — $80,000 or below for single filers and $160,000 or below for joint filers — you’ll receive a tax credit for 100 percent of the first $2,000, plus 25 percent of the next $2,000, paid during the taxable year for tuition, fees and course materials. Here’s a look at how much credit you’ll receive depending on the amount you claim for tuition, fees and course materials.
|American Opportunity Tax Credit Calculations|
|Amount Claimed||Credit Received|
|$4,000 and above||$2,500|
Who Is Eligible for the Lifetime Learning Credit?
The lifetime learning credit is not as generous as the American opportunity credit, but you can claim it throughout your lifetime, whether you’re an undergrad, graduate student or older, nontraditional student. The credit offers a maximum of $2,000 per year. The same expenses qualify as those for the American opportunity credit, but the credit is nonrefundable, so you can’t use it if you don’t owe taxes.
What Are the Income Limits for the Lifetime Learning Credit?
According to the latest information available on the IRS website, the amount of your lifetime learning credit is gradually reduced if your adjusted gross income is between $56,000 and $66,000, or $112,000 and $132,000 if you file a joint return. You are not eligible for the credit if your adjusted gross income is $66,000 or more if you’re a single filer, or $132,000 or more if you file a joint return.
How the Lifetime Learning Credit Is Calculated
The lifetime learning credit offers a benefit of up to $2,000 per year for educational expenses. It differs from the American opportunity credit in that you cannot get a refund if you have zero tax liability. You might be eligible to claim both credits for the same student in the same year, but the IRS entitles you to claim only one per student.
The amount of the credit is 20 percent of the first $10,000 of qualified education expenses, or a maximum of $2,000 per return if you meet the income requirements for a full claim. Here’s a look at how much credit you’ll receive depending on the amount you claim for tuition, fees and course materials.
|Lifetime Learning Credit Calculations|
|Amount Claimed||Credit Received|
|$10,000 or more||$2,000|
Where Do I Get My 1098-T?
To get a tax break based on the American opportunity tax credit or the lifetime learning credit, you must submit a Form 1098-T, which schools mail to students by the end of January. The form shows the total amount of tuition and other educational expenses the school collected during the calendar year. For both credits, you must also complete Form 8863 and attach it to Form 1040 when you file. The deadline for applying for either of the education tax credits is the same as the regular tax due date: April 15, 2019 for residents of most states, and April 17, 2019 if you live in Maine or Massachusetts.
To figure out the tax credit number you’ll be able to claim, make sure that all the figures are correct. If you’re audited by the IRS and the numbers you provided are incorrect, the IRS might charge you an accuracy or fraud penalty.
More on Taxes
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- Taxes Have Changed for Divorced Parents — Here’s What You Need to Know
- Can I Claim My Boyfriend or Girlfriend on My Taxes?
- Watch: How to Legally Cheat Your Tax Bracket
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Gabrielle Olya contributed to the reporting for this article.