Many people do not realize that education credits are not only available for your child’s tuition. Instead, they are also available for you, your spouse, or your dependents. Even if you attend school part-time, these credits may still be available.
There are two education-related credits available: the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). For either credit, the student must be enrolled in an eligible educational institution for at least one academic period (semester, trimester or quarter) during the year. An eligible educational institution is any accredited public, nonprofit, or proprietary post-secondary institution that can participate in the U.S. Department of Education’s student aid programs.
The credits phase out for higher-income taxpayers who are married filing jointly (MFJ) or who are unmarried. Those who are married filing separately (MFS) do not qualify for either credit.
The following table provides the qualifications for both credits:
|Allowance Period||First 4 years of post-secondary education||Any post-secondary education for any number of years|
|Enrollment||Must be considered at least a half-time student by the educational institution||Not required to be enrolled at least half-time|
|Program Type||Must be pursuing a program leading to a degree or another recognized educational credential||Not required to be enrolled for the purpose of obtaining a degree or other credential|
|Credit Applied||Per student||Per family|
|Credit Amount||100% of the first $2,000 and 25% of the next $2,000 in qualified expenses||20% of up to $10,000 in qualified expenses|
|Qualified Expenses||Qualified tuition and related expenses, which include books, supplies and equipment required for enrollment or attendance||Qualified tuition and related expenses; the books, supplies and equipment must be purchased from the educational institution|
|High Income Phase-out Based upon filing status and adjusted gross income (inflation-adjusted annually; 2017 amounts shown)||MFJ: $160,000 to $180,000MFS: No credit allowedUnmarried: $80,000 to $90,000||MFJ: $112,000 to $132,00MFS: No credit allowedUnmarried: $56,000 to $66,000|
|Refundable*||Partially; 40% of the credit is treated as refundable||No|
*Generally, credits are nonrefundable, meaning that they can only be used to offset your tax liability; any amount exceeding your current-year tax liability is lost. However, unlike other credits, the AOTC is partially refundable in most cases.
Many individuals who both work and attend school can be enrolled less than halftime and still qualify for the LLC.
Another interesting twist to education credits is that the taxpayer who qualifies for and claims the student’s exemption for the year gets the credit—even if someone else pays the expenses. Thus, for example, even if a noncustodial parent pays a child’s college expenses, the custodial parent gets the credit if he or she is otherwise qualified. The same applies when grandparents help pay for their grandchild’s education; the grandparents do not qualify for the credit unless they, and not the child’s parents, claim the student as a dependent.
Generally, the educational institution sends a Form 1098-T to the taxpayer (or dependent); this includes the information necessary to complete the IRS form and claim the credit. Unless the IRS has exempted the educational institution from having to file a 1098-T, the law requires the taxpayer to have this 1098-T in hand to claim either of the credits.
If you have questions about how this these education tax credit provisions apply to you, please give Dagley & Co. a call.
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