February 12, 2015
For those paying for their education, there are a few tax credits that can help decrease the amount owed. The American Opportunity Credit and the Lifetime Learning Credit are available to those responsible for education expenses, such as tuition, fees, textbooks, supplies, and equipment. Some incurred expenses, like insurance, transportation, and personal fees aren't eligible to be claimed for either tax credit.
American Opportunity Credit
Taxpayers can receive a dollar for dollar benefit of up to $2,500 for each student who meets the qualifying criteria. In order to be eligible, the student must be enrolled at least half-time for a minimum of one academic semester through the tax year. Also, the student must be studying to obtain an undergraduate degree, or certain certifications. The taxpayer who claims the credit can't have a criminal record that includes a felony drug conviction, otherwise he is ineligible to receive the credit.
The American Opportunity Credit allows even those who don't owe taxes to receive a refund of up to $1,000 since 40% of the credit is refundable.
Lifetime Learning Credit
Each eligible student can receive up to $2,000 each year with the Lifetime Learning Credit. Unlike the American Opportunity Credit, this benefit isn't limited by degree or student status, meaning part-time graduate students can still take advantage of this credit. However, all taxpayers who claim the Lifetime Learning Credit must have paid taxes for the year. There is no refundable portion of the credit for those who didn't owe taxes. Also unlike the previous credit, taxpayers with felony drug convictions can claim this credit.
These tax breaks aren't available to taxpayers who paid for educational expense with grants, fellowships or scholarships. There are income restrictions for both credits, and the person claiming either credit cannot be listed as a dependent on anyone else's tax return.
"Furthering your education can get pricey, but thankfully these tax breaks can help make it a little bit easier on your pocket come tax time." explained Paul Stanley of eTax.com.