Tax credits may be available to parents who pay higher education costs for their dependents. An education credit helps with the cost of higher education by reducing the amount of tax owed on your tax return. If the credit reduces your tax to less than zero, you may get a refund. There are two education credits currently available: the American Opportunity Tax Credit and the Lifetime Learning Credit.
The American Opportunity Tax Credit (AOTC) is:
Worth a maximum benefit up to $2,500 per eligible student.
Only available for the first four years of post-high school study at an eligible educational or vocational school.
For students pursuing a degree or other recognized education credential.
Partially refundable. Eligible taxpayers can get up to $1,000 of the credit as a refund, even if they do not owe any tax.
Income limits. The credit is available to taxpayers whose modified adjusted gross income is $80,000 or less ($160,000 or less for joint filers). The credit is reduced if a taxpayer’s modified adjusted gross income exceeds those amounts. A taxpayer whose modified adjusted gross income is greater than $90,000 ($180,000 for joint filers) cannot claim any of the credit.
To claim the credit—Determine your eligibility and claim the credit by filling out IRS Form 8863. You must provide the educational institution’s employer identification number (EIN) on your Form 8863. You should also file form 1098-T, which should be received early in the year from your educational institution.
The Lifetime Learning Credit (LLC) is:
Worth up to $2,000 per tax return, per year, no matter how many students qualify.
Available for all years of postsecondary education and for courses to acquire or improve job skills.
Available for an unlimited number of tax years.
Non-refundable. You cannot get a refund if you owe zero tax.
Income limits. A taxpayer whose modified adjusted gross income is $56,000 or less ($112,000 or less for joint filers) in 2018 can claim the credit for the qualified expenses on a tax return. The credit is reduced if a taxpayer’s modified adjusted gross income exceeds those amounts. A taxpayer whose modified adjusted gross income is greater than $66,000 ($132,000 for joint filers) cannot claim the credit. These limits are indexed to inflation and change annually.
To claim the credit – Determine your eligibility, and fill out IRS Form 8863.