The IRS offers three tax breaks for the costs of your higher education.
- Lifetime Learning Credit (LLC) – $2,000
- American Opportunity Credit (AOC) – $2,500
- Tuition and Fees Deduction – $4,000
You can only choose one each year, so be sure to choose the one that will give you the most money back. It’s usually better to take a tax credit rather than a deduction because credits reduce your tax liability dollar for dollar. Deductions only reduce the amount of your income that is taxable.
So, if you are eligible for a $2,000 tax credit, you can subtract that directly from what you owe the IRS, and you will save $2,000. But if you take a deduction for the same amount, you simply reduce your taxable income by $2,000. Therefore, if your tax rate is 25%, you will only save $500.
As for the credits, one major difference between the AOC and the Lifetime Learning Credit is that the AOC requires the student to be pursuing a degree or other recognized education credential. For the Lifetime Learning Credit, you could also be studying to get or improve job skills without being on a degree track. There are many more differences between the two credits. The IRS offers a convenient table so you can compare them all side by side.
What Is the Lifetime Learning Credit (LLC)?
The Lifetime Learning credit is a tax credit that can help you to pay for undergraduate, graduate and professional courses. These include courses that you take to improve job skills. How many years you can claim the credit is unlimited.
Eligibility for the Lifetime Learning Credit
You must fulfill all these criteria to be eligible for the LLC:
- You pay qualified education expenses for higher education. Qualified expenses include tuition, fees, and related expenses. They do not include living expenses, room and board, transportation or similar expenses.
- You pay the education expenses for an eligible student enrolled at an eligible educational institution. An eligible educational institution is a school offering higher education beyond high school. You can check to be sure your institution is eligible at the S. Federal Student Aid Code List. However, if you don’t see your school on the list, it may be one of a few schools that are eligible but were not put on the list. Ask your school to be sure.
- The eligible student is yourself, your spouse or a dependent you listed on your tax return.
- The student is enrolled for at least one academic period beginning in the tax year. The definition of “academic period” is loose. An academic period is determined by the school and could be a quarter, a semester or other period.
- The student is taking higher education courses to get a degree or other recognized education credential or to get or improve job skills
You cannot claim an education credit when:
- Another person such as your parents is listing you as a dependent.
- You are married but filing separately.
- You already claimed another higher education benefit using the same student or same expenses. (We already addressed that you cannot get double benefits.)
- You or your spouse were a non-resident alien for any part of the year and did not choose to be categorized as a resident alien for tax purposes.
The IRS has an Interactive Tax Assistant that helps you determine if you are eligible. To use this tool, be prepared with
- Filing status
- Your adjusted gross income
- Student’s enrollment status
- Information on whether any expenses were paid with tax-exempt funds
- Who paid the expenses, when the expenses were paid and for what academic period.
- Information on whether expenses were paid with distributions from a Qualified Tuition Program or Coverdell Education Savings Account (a federally sponsored, tax-advantaged trust or custodial account set up to pay for qualified education expenses).
Income Limits for the Lifetime Learning Credit
- To get the full credit, your modified adjusted gross income (MAGI), has to be $65,000 or under if you file single. If you are married and file jointly, it must be $131,000 or under.
- If your MAGI is between $55,000 and $65,000 and you file individually, you will receive credit in a lesser amount. This also applies if you are married and file jointly, and your MAGI is from $111,000 to less than $131,000.
- If your MAGI is over $65,000 for individual filers, you cannot claim the credit. Those who file jointly cannot claim it if they make over $130,000.
There are worksheets in Publication 970, Tax Benefits for Education, to help you determine your MAGI.
How to Claim the Lifetime Learning Credit
Your school will usually send you a Form 1098-T, Tuition Statement on or before January 31. It will help you to figure out your credit. You will see an amount received or billed during the year, but that may not be the same as the amount you are able to claim. If the school does not send you the form of or if it contains incorrect information, contact your school for a correction.
Form 8863 to your tax return.
How Much Is the Lifetime Learning Credit Worth?
The maximum is $2,000 per return. You can get 20% of the initial $10,000 of qualified education expenses up to that amount. You can pay any tax you like with the credit, but if you don’t owe that much, you won’t get a refund for the amount you don’t use.
Higher education is expensive.
Be sure to take advantage of everything you can to help you to succeed. Everything adds up. The Lifetime Learning Credit can give you $8,000 in tax relief over the course of a four-year education, and it’s simple to claim. Be sure to compare which of the tax breaks offered by the IRS for higher education is right for your situation.