Paying for college is never cheap, and students can use all the help they can get. You may be able to alleviate some of the cost of college education through two different tax credits that lessen the amount you owe at tax time.
The American Opportunity Tax Credit allows you to claim up to $2,500 per eligible student, enrolled in the first four years at an eligible college or vocational school, working toward a degree or recognized certificate. It is a refundable credit that reduces your taxes. If your tax liability reaches zero, you may receive up to $1000 in a refund. In order to claim the credit you have to be enrolled at least half time for a full academic period during the tax year. Expenses that apply to the credit include tuition fees, books, and required supplies and incidentals.
Lifetime Learning Credit applies to all levels of higher education, including graduate studies or classes for improving job skills. The credit is limited to the amount of your taxes, up to $2,000 per tax year. It is not refundable, but the same expenses that apply to the American Opportunity Tax Credit also qualify for the Lifetime Learning Credit.
In order to claim either tax credit, either you, your spouse, or your dependent need to be an eligible student. You'll have to complete Form 8863 and file along with your Form 1040 in order to claim the credits. At the end of the tax year, you will receive a Form 1098-T, tuition Statement, which has all the information you need to complete the Form 8863.
You're also only eligible to claim one credit per student for the same expense, and you can't claim either credit if you are listed as a dependent on someone else's return. Both credits are subject to different income limitations.