Education Tax Benefits

Education Tax Benefits

Tax Credit Facts at a Glance

This information is not intended as legal or tax advice. Please consult your personal tax advisor to determine your eligibility for education tax credits.

Topic American Opportunity Lifetime Learning
Who Benefits from the tax credits "Eligible student" who pays qualified expenses and is not claimed as a dependant on a parent's return OR taxpayer who claims "eligible student" as a dependent, whether the qualified expenses are paid by the taxpayer or student. Either parent or child, but not both, may claim credit for child's qualified expenses paid in a particular year. Married individuals, filing separately, are not allowed a tax credit. SAME
Definition of "Eligible student" Student enrolled in a degree, certificate, or other program leading to a recognized educational credential in one of the first two years of post secondary education. Credit disallowed for any student convicted for a Federal or State felony offense consisting of the possession or distribution of a controlled substance. Student enrolled in a degree, certificate, or other program leading to recognized educational credential for graduate or undergraduate work or to improve job skills.
Enrollment Requirements for "Eligible student" Student must be enrolled at least one-half time during at least one academic period beginning during the calendar year. No minimum enrollment requirement exists.
Number of Years Credit Available Credit may be claimed in only the first four years of post-secondary education for each eligible student. No limit on number of years credit may be claimed by taxpayer.
How Many Credits May Be Claimed Each Year Taxpayer is permitted one credit per eligible student per year. Taxpayer is limited to one $2,000 credit per year regardless of the number of eligible dependent students in the family.
  Note: For each tax year in which a student meets the eligibility requirements for the American Opportunity tax credit, the student's expenses may only be used as the basis for the American Opportunity or a Lifetime Learning Credit, but not for both.  
Credit Calculation 100% of the first $2,000 and 25% of the next $2,000 of qualified tuition and related expenses (i.e. maximum of $2,500 per student). 20% of the first $10,000 qualified tuition and fees (i.e. maximum $2,000 per taxpayer).
Qualified Expenses Tuition and fees a student is required to pay "out-of-pocket" in order to be enrolled at or attend the University. For 2011 and 2012, qualified tuition and related expenses has been expanded to include expenditures for "course materials". For this purpose, the term "course materials" means books, supplies, and equipment needed for a course of study whether or not the materials are purchased from the educational institution as a condition of enrollment or attendance. Amounts paid for any course of other education involving sports, games, or hobbies are not eligible for the credit unless the course or other education is part of the students degree program. Charges and fees associated with room, board, student activities, athletics, insurance, books, equipment, transportation, and similar personal, living, or family expenses are not qualified. Tuition and fees a student is required to pay "out-of-pocket" in order to be enrolled at or attend the University. Amounts paid for any course of other education involving sports, games, or hobbies are not eligible for the credit unless the course or other education is part of the students degree program. Charges and fees associated with room, board, student activities, athletics, insurance, books, equipment, transportation, and similar personal, living, or family expenses are not qualified.
Out-of-Pocket Expenses Qualified expenses paid with student's earnings, a loan, gift, inheritance, or personal savings are included; expenses paid with a Pell Grant, other tax-free scholarship, tax-free distribution from Education IRA, or tax-free employer provided educational assistance are not counted. SAME
Credit Phase-out Limits Credit reduced for single taxpayers who have modified adjusted gross income between $80,000 and $90,000. For married filing jointly, credit phases out for modified adjusted gross income between $160,000 and $180,000. Credit reduced for single taxpayers who have modified adjusted gross income between $50,000 and $60,000. For married filing jointly, credit phases out for modified adjusted gross income between $100,000 and $200,000
Credit Effective Dates Qualified tuition and related expenses made during the 2011 and 2012 tax (calendar) years. Qualified tuition and related expenses made during the 2011 and 2012 tax (calendar) years.
Timing of Payments Qualified expenses paid in one calendar year will include expenses paid to cover an academic period which begins the following January, February or March. Qualified expenses paid in one calendar year will include expenses paid to cover an academic period that begins the following January, February or March.