Education Credits Aren’t Just for Children’s Tuition

If you think education credits are just for sending your children to college, think again; the credits are available to you, your spouse (if you are married), and your dependents. Even if you or your spouse only attend school part-time, you still may qualify for a tax credit.

Two education-related tax credits are available: the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). For either credit, the student must be enrolled in an eligible educational institution for at least one academic period (semester, trimester, or quarter) during the year. An eligible educational institution is any accredited public, nonprofit, or proprietary postsecondary institution that can participate in the U.S. Department of Education’s student aid programs. 

The credits phase out for higher-income taxpayers who are married, filing jointly (MFJ), or who are unmarried. Those who are married and filing separately (MFS) do not qualify for either credit.

Eligible Expenses - The following table defines the eligible and ineligible expenses used to determine education expenses. It illustrates the differences between costs that qualify for the AOTC and the LLC.  

Credit Qualifications – There are differences in the qualifications for each credit, as illustrated in the table below.

*Credits are generally nonrefundable, meaning they can only be used to offset your tax liability; any amount exceeding your current-year tax liability is lost. However, unlike other credits, the AOTC is usually partially refundable.

Many individuals working and attending school can be enrolled less than halftime and still qualify for the LLC.

Another interesting twist to education credits is that the taxpayer who qualifies for and claims the student’s exemption for the year gets the credit—even if someone else pays the expenses. Thus, for example, even if a noncustodial parent pays a child’s college expenses, the custodial parent gets the credit if they are otherwise qualified. The same applies when grandparents help pay for their grandchild’s education; the grandparents do not qualify for the credit unless they, not the child’s parents, claim the student as a dependent.

Generally, the educational institution sends a Form 1098-T to the taxpayer (or dependent); this includes the information necessary to complete the IRS form and claim the credit. Unless the IRS has exempted the educational institution from filing a 1098-T, the law requires the taxpayer to have this 1098-T in hand to claim either of the credits. In the latter case, the taxpayer will need to be able to document the student’s enrollment at an eligible educational institution and substantiate the amount of any scholarships received, the tuition payment(s) made, and related expenses.

If you have questions about how these education tax credit provisions apply to you, please call this office.