Every year, we hear about the struggle of college students and how hard it is for them to pay their tuition debts. Students and parents alike are looking for ways to help them ease their debt. Klein Hall can help.
There are two federal tax credits that are applicable to students: the American Opportunity Tax Credit and the Lifetime Learning Credit. Each student and/or household is only allowed to claim one of these credits per year. We have broken down both of these options and what is needed to qualify for them to help you decide which is right for you.
Both credits are available to eligible students enrolled in any higher education institution, including vocational schools. The credits are subject to income limits; however, they apply to both profit and not-for-profit schools alike.
According to the IRS a qualified educational expense is defined as: “amounts paid for tuition, fees and other related expenses for an eligible student. Other expenses, such as room and board, do not qualify.”
American Opportunity Tax Credit
This carries a maximum credit of $2,500 per student per year. Students can claim this credit for qualified expenses for 4 years.
So, how much credit will you earn? The credit breaks down like this:
100% of the first $2,000 spent. Therefore, every student will receive a refund for their FULL expenses until the $2,000 threshold. 25% of the next $2,000 spent is also eligible, until the maximum is reached.
If there is no tax owed on a return, up to $1,000 can be earned per student.
So, who is eligible for this credit?
Students and households earning $80,000 or LESS are eligible for this credit. If you are married, the limit is $160,000. Any student and/or household that has an AGI higher than these amounts does not qualify for this credit.
Lifetime Learning Credit
Carries a maximum credit of $2,000 per year. Unlike the other credit offered, this credit is per tax return instead of per student. There is no lifespan on this credit, and is available for all students from undergrad to post-grad.
So how much credit will you earn? This credit breaks down like this:
20% of education expenses paid for all students under one roof. A student, family and/or household must spend $10,000 in order to receive the maximum credit.
So who is eligible for this credit?
In order to be eligible for this credit, a household’s income must be $55,000 per year or LESS. For married couples, the limit is $110,000. Any household that makes more than this amount is not eligible for a credit.
Typically, a household that earns more than $160,000 per year is not eligible for either of these credits. However, there are other credits that the government offers to assist families with college expenses.
To learn more about the credits available to students and which is the best option for you, turn to Klein Hall, a Naperville CPA firm with more than 50 years of experience. Let us help you get the most out of your returns. To schedule an appointment or if you have any questions, please do not hesitate to contact us.