Are you, your spouse or a dependent heading off to college? If so, here’s a quick tip from the IRS: some of the costs you pay for higher education can save you money at tax time. Here are several important facts you should know about education tax credits:
- American Opportunity Tax Credit. The AOTC
can be up to $2,500 annually for an eligible student. This credit
applies for the first four years of higher education. Forty percent of
the AOTC is refundable. That means that you may be able to get up to
$1,000 of the credit as a refund, even if you don’t owe any taxes.
- Lifetime Learning Credit. With the LLC,
you may be able to claim a tax credit of up to $2,000 on your federal
tax return. There is no limit on the number of years you can claim this
credit for an eligible student.
- One credit per student. You can claim only one type of education credit per student
on your federal tax return each year. If more than one student
qualifies for a credit in the same year, you can claim a different
credit for each student. For example, you can claim the AOTC for one
student and claim the LLC for the other student.
- Qualified expenses. You may include qualified expenses
to figure your credit. This may include amounts you pay for tuition,
fees and other related expenses for an eligible student. Refer to
IRS.gov for more about the additional rules that apply to each credit.
- Eligible educational institutions. Eligible schools
are those that offer education beyond high school. This includes most
colleges and universities. Vocational schools or other postsecondary
schools may also qualify.
- Form 1098-T. In most cases, you should receive Form 1098-T,
Tuition Statement, from your school. This form reports your qualified
expenses to the IRS and to you. You may notice that the amount shown on
the form is different than the amount you actually paid. That’s because
some of your related costs may not appear on Form 1098-T. For example,
the cost of your textbooks may not appear on the form, but you still may
be able to claim your textbook costs as part of the credit. Remember,
you can only claim an education credit for the qualified expenses that
you paid in that same tax year.
- Nonresident alien. If you are in the U.S. on an F-1 student
visa, you usually file your federal tax return as a nonresident alien.
You can’t claim an education credit if you were a nonresident alien for
any part of the tax year unless you elect to be treated as a resident
alien for federal tax purposes. To learn more about these rules see Publication 519, U.S. Tax Guide for Aliens.
- Income limits. These credits are subject to income limitations and may be reduced or eliminated, based on your income.