Like all tax credits, an education credit reduces the amount of tax you owe.
Two education credits are available: The American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit. Both are refundable credits, meaning if taking the credit reduces the amount of tax you owe to zero, you can receive a refund for the all or part of the balance of the credit.
You may be eligible for the AOTC if:
- You have qualified education expenses for an eligible student (including yourself) in the first four years of higher education.
- Your modified adjusted gross income (MAGI) is $80,000 or less if filing single or $160,000 or less married filing jointly. The credit is phased out for taxpayers with incomes above these levels.
- You have not claimed the LLC for the same qualifying student(s).
If eligible, you can receive a credit for 100 percent of the first $2,000 of qualified education expenses and 25 percent ($500) of the next $2,000 in qualified expenses. The maximum allowable credit is $2,500 for each qualified student.
If the credit reduces your tax burden to zero, you may receive 40 percent of the remaining credit amount (up to $1,000) as a refund.
To qualify for the LLC you must:
- Have qualified higher education expenses for yourself, your dependent or third party.
- The student must have been enrolled in an eligible educational institution.
- Your MAGI is $66,000 or less if you file single or $132,000 or less married filing jointly.
While the AOTC is limited to the first four years of higher education, the LLC can help pay for undergraduate, graduate and professional degree courses--including courses to acquire or improve job skills..
The credit is for 20 percent of the first $10,000 of qualified educational expenses or a maximum of $2,000 per tax return, regardless of how many students are in your household.
You can’t claim the LLC if you already claimed the AOTC for the same student in the tax year.