If you pay for college in 2016, you may receive some tax savings on your federal tax return, even if you’re studying outside of the U.S. Both the American Opportunity Tax Credit and the Lifetime Learning Credit may reduce the amount of tax you owe, but only the AOTC is partially refundable.
Here are a few things you should know about education credits:
American Opportunity Tax Credit ‒ The AOTC
is worth up to $2,500 per year for an eligible student. This credit is
available for the first four years of higher education. Forty percent of
the AOTC is refundable. That means, if you’re eligible, you can get up
to $1,000 of the credit as a refund, even if you do not owe any tax.
Lifetime Learning Credit ‒ The LLC
is worth up to $2,000 per tax return. There is no limit on the number
of years that you can claim the LLC for an eligible student.
Qualified expenses ‒ You may use only qualified expenses
paid to figure your credit. These expenses include the costs you pay
for tuition, fees and other related expenses for an eligible student to
enroll at, or attend, an eligible educational institution. Refer to IRS.gov for more on the rules that apply to each credit.
Eligible educational institutions ‒ Eligible educational schools
are those that offer education beyond high school. This includes most
colleges and universities. Vocational schools or other postsecondary
schools may also qualify. If you aren’t sure if your school is eligible:
- Ask your school if it is an eligible educational institution, or
- See if your school is on the U.S. Department of Education’s Accreditation database.
Form 1098-T ‒ In most cases, you should receive Form 1098-T,
Tuition Statement, from your school by February 1. This form reports
your qualified expenses to the IRS and to you. The amounts shown on the
form may be either: (1) the amount you paid for qualified tuition and
related expenses, or (2) the amount that your school billed for
qualified tuition and related expenses; therefore, the amounts shown on
the form may be different than the amounts you actually paid. Don’t
forget that you can only claim an education credit for the qualified tuition and related expenses that you paid in the tax year and not just the amount that your school billed. If Form 1098-T does not have the amount paid, you must have copies of receipts showing these payments or a statement from the school showing amounts paid for qualifying expenses.
- Income limits ‒ The education credits are subject to income limitations and may be reduced, or eliminated, based on your income.