Learn about Tax Benefits for Education

The following article was published by the IRS.

The beginning of the school year is a good time for a reminder of the tax benefits for education. These benefits can help offset qualifying education costs.

Here is information about two tax credits available to those who pay higher education costs for themselves, a spouse or a dependent.

The American Opportunity Tax Credit (AOTC) is:

  • Worth a maximum benefit up to $2,500 per eligible student.
  • Only available for the first four years at an eligible educational or vocational school.
  • For students pursuing a degree or other recognized education credential.
  • Partially refundable. Eligible taxpayers can get up to $1,000 of the credit as a refund, even if they do not owe any tax.

The Lifetime Learning Credit (LLC) is:

  • Worth up to $2,000 per tax return, per year, no matter how many students qualify.
  • Available for all years of postsecondary education and for courses to acquire or improve job skills.
  • Available for an unlimited number of tax years

Taxpayers should use Form 8863, Education Credits, to claim these education credits.

Additionally:

  • A student is required to have Form 1098-T, Tuition Statement, to be eligible for an education benefit. They receive this form from the school attended.
  • Taxpayers may use only qualified expenses paid to figure a tax credit. These include tuition and fees and other related expenses for an eligible student.
  • Eligible educational schools are those that offer education beyond high school. This includes most colleges and universities.
  • Taxpayers may only claim qualified expenses in the year paid.
  • Taxpayers can’t claim either credit if someone else claims them as a dependent.
  • Income limits could reduce the amount of credits.
  • Taxpayers can’t claim either the AOTC or LLC for the same student or for the same expense in the same year.
  • The Interactive Tax Assistant tool on IRS.gov can help determine eligibility for certain educational credits including the American Opportunity Credit and the Lifetime Learning Credit.

See IRS Publication 970, Tax Benefits for Education, for details, rules, examples and a complete explanation of benefits.

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About cozbycpa

Heather L. Cozby is a CPA on the South Shore and Cape Cod. The managing partner of Cozby & Company, LLC, Heather has the resources and experience necessary to provide quality professional services on a timely basis and at a reasonable cost. She specializes in tax planning & preparation; audit, review & compilation services; management advisory services; bookkeeping; and accounting. Her unique niche is in working with homeowners’ associations and condominium trusts, advising with rental real estate, and providing outsourced financial consulting for mid-sized companies. She is more entrepreneurial than most accountants, and offers the best of both worlds - providing the services of a larger firm while retaining the ability to connect with her clients on a personal level.
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