Heading off to College

Are you or one of your dependents headed off to college this fall?  If so, the IRS provides several education tax credits that will help offset some of the cost.  Here is a brief description of the two most common credits.

The first credit is the American Opportunity Credit.  This credit is available only during the first 4 years of higher education.  You (or your spouse or a dependent) must be enrolled in a program that leads to a degree or certificate, you must be enrolled in at least half of a full time work load, you must not have been convicted of a felony for distributing a controlled substance at the federal or state level, and you must incur expenses related to the education, such as tuition.  If all of these requirements are met, you can claim a credit of up to $2,500.  The credit does begin to phase out as income exceeds $80,000 for a single taxpayer or $160,000 for a taxpayer filing a joint return.  Also, $1,000 of the credit is refundable which means you can receive up to this amount even if you have no tax liability.  The other $1,500 is non-refundable meaning it can only be used to offset tax liability until it reaches $0.

If you don’t qualify for the American Opportunity Credit, you may qualify for the Lifetime Learning Credit.  This credit only requires you to take at least one class at a higher education institution.  The credit is for 20% of eligible expenses, with a maximum credit allowed of $2,000.  There is no limit to the number of times this credit may be claimed.  This credit begins to phase out as income levels reach $54,000 filing singly or $108,000 filing jointly.  The credit is non-refundable.

It is important to note that neither credit is available to taxpayers with a filing status of Married Filing Separately.  Also, each student may only claim one tax credit per year.

If you pay for higher education expenses, chances are pretty good that you will qualify for one of these credits which can help ease the financial burden that comes with attending a higher education institute.