WASHINGTON ― With another school year just around the corner, the
Internal Revenue Service today reminded parents and students that now is
a good time to see if they will qualify for either of two college tax
credits or other education-related tax benefits when they file their
2015 federal income tax returns.
In general, the
American Opportunity Tax Credit or Lifetime Learning Credit
is available to taxpayers who pay qualifying expenses for an eligible
student. Eligible students include the taxpayer, spouse and dependents.
The American Opportunity Tax Credit provides a credit for each eligible
student, while the Lifetime Learning Credit provides a maximum credit
per tax return.
Though a taxpayer often qualifies for both of these credits, he or
she can only claim one of them for a particular student in a particular
year. To claim these credits on their tax return, the taxpayer must
file Form 1040 or 1040A and complete
Form 8863, Education Credits.
The credits apply to eligible students enrolled in an eligible
college, university or vocational school, including both nonprofit and
for-profit institutions. The credits are subject to income limits that
could reduce the amount claimed on their tax return.
To help determine eligibility for these benefits, taxpayers should visit the
Education Credits Web page or use the IRS’s
Interactive Tax Assistant tool. Both are available on IRS.gov.
Normally, a student will receive a
Form 1098-T
from their institution by Jan. 31 of the following year. (For 2015, the
due date is Feb. 1, 2016, because otherwise it would fall on a Sunday.)
This form will show information about tuition paid or billed along with
other information. However, amounts shown on this form may differ from
amounts taxpayers are eligible to claim for these tax credits. Taxpayers
should see the instructions to Form 8863 and
Publication 970 for details on properly figuring allowable tax benefits.
Many of those eligible for the
American Opportunity Tax Credit
qualify for the maximum annual credit of $2,500 per student. Students
can claim this credit for qualified education expenses paid during the
entire tax year for a certain number of years:
- The credit is only available for four tax years per eligible student.
- The credit is available only if the student has not completed the first four years of postsecondary education before 2015.
Here are some more key features of the credit:
- Qualified education expenses
are amounts paid for tuition, fees and other related expenses for an
eligible student. Other expenses, such as room and board, are not
qualified expenses.
- The credit equals 100 percent of the first $2,000 spent and 25
percent of the next $2,000. That means the full $2,500 credit may be
available to a taxpayer who pays $4,000 or more in qualified expenses
for an eligible student.
- Forty percent of the American Opportunity Tax Credit is refundable.
This means that even people who owe no tax can get an annual payment of
up to $1,000 for each eligible student.
- The full credit can only be claimed by taxpayers whose modified
adjusted gross income (MAGI) is $80,000 or less. For married couples
filing a joint return, the limit is $160,000. The credit is phased out
for taxpayers with incomes above these levels. No credit can be claimed
by joint filers whose MAGI is $180,000 or more and singles, heads of
household and some widows and widowers whose MAGI is $90,000 or more.
The Lifetime Learning Credit of up to $2,000 per tax return is
available for both graduate and undergraduate students. Unlike the
American Opportunity Tax Credit, the limit on the Lifetime Learning
Credit applies to each tax return, rather than to each student. Also,
the Lifetime Learning Credit does not provide a benefit to people who
owe no tax.
Though the half-time student requirement does not apply to the
lifetime learning credit, the course of study must be either part of a
post-secondary degree program or taken by the student to maintain or
improve job skills. Other features of the credit include:
- Tuition and fees required for enrollment or attendance qualify as do
other fees required for the course. Additional expenses do not.
- The credit equals 20 percent of the amount spent on eligible
expenses across all students on the return. That means the full $2,000
credit is only available to a taxpayer who pays $10,000 or more in
qualifying tuition and fees and has sufficient tax liability.
- Income limits are lower than under the American Opportunity Tax
Credit. For 2015, the full credit can be claimed by taxpayers whose MAGI
is $55,000 or less. For married couples filing a joint return, the
limit is $110,000. The credit is phased out for taxpayers with incomes
above these levels. No credit can be claimed by joint filers whose MAGI
is $130,000 or more and singles, heads of household and some widows and
widowers whose MAGI is $65,000 or more.
Eligible parents and students can get the benefit of these credits
during the year by having less tax taken out of their paychecks. They
can do this by filling out a new
Form W-4, claiming additional withholding allowances, and giving it to their employer.
There are a variety of other education-related tax benefits that can help many taxpayers. They include:
- Scholarship and fellowship grants — generally tax-free if used to
pay for tuition, required enrollment fees, books and other course
materials, but taxable if used for room, board, research, travel or
other expenses.
- Student loan interest deduction of up to $2,500 per year.
- Savings bonds used to pay for college — though income limits apply,
interest is usually tax-free if bonds were purchased after 1989 by a
taxpayer who, at time of purchase, was at least 24 years old.
- Qualified tuition programs, also called 529 plans, used by many families to prepay or save for a child’s college education.
Taxpayers with qualifying children who are students up to age 24 may be able to claim a dependent exemption and the
Earned Income Tax Credit.
The general comparison table in Publication 970 can be a useful guide
to taxpayers in determining eligibility for these benefits. Details can
also be found in the
Tax Benefits for Education Information Center on IRS.gov.
