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Educational Tax Credits in Time for Back to College

Posted by IRS on Tue, Aug 23, 2016

Educational Tax Credits in Time for Back to CollegeIf you pay for college for your child or yourself this year, you may receive some tax savings on your federal tax return, even if you’re studying outside of the U.S.

Both the American Opportunity Tax Credit and the Lifetime Learning Credit may reduce the amount of tax you owe, but only the AOTC is partially refundable.

Here are a few things you should know about education credits from the IRS: 

  •  American Opportunity Tax Credit: The AOTC is worth up to $2,500 per year for an eligible student. This credit is available for the first four years of higher education. Forty percent of the AOTC is refundable. That means, if you’re eligible, you can get up to $1,000 of the credit as a refund, even if you do not owe any tax.
  • Lifetime Learning Credit: The LLC is worth up to $2,000 per tax return. There is no limit on the number of years that you can claim the LLC for an eligible student.
  • Qualified expenses: You may use only qualified expenses paid to figure your credit. These expenses include the costs you pay for tuition, fees and other related expenses for an eligible student to enroll at, or attend, an eligible educational institution. Refer to IRS.gov for more on the rules that apply to each credit.


READ MORE: 5 Steps Individuals Should Consider Now for a Better 2016 Tax Season

  • Eligible educational institutions: Eligible educational schools are those that offer education beyond high school. This includes most colleges and universities. Vocational schools or other postsecondary schools may also qualify. If you aren’t sure if your school is eligible:
    • Ask your school if it is an eligible educational institution, or
    • See if your school is on the U.S. Department of Education’s Accreditation database.
  • Form 1098-T: In most cases, you should receive Form 1098-T, Tuition Statement, from your school by February 1. This form reports your qualified expenses to the IRS and to you. The amounts shown on the form may be either:  (1) the amount you paid for qualified tuition and related expenses, or (2) the amount that your school billed for qualified tuition and related expenses; therefore, the amounts shown on the form may be different than the amounts you actually paid. Don’t forget that you can only claim an education credit for the qualified tuition and related expenses that you paid in the tax year and not just the amount that your school billed. 
  • Income limits: The education credits are subject to income limitations and may be reduced, or eliminated, based on your income.
  • Interactive Tax Assistant tool: To see if you’re eligible to claim education credits, use the Interactive Tax Assistant tool on IRS.gov.

READ MORE: Pay College Tuition Early For Tax Savings - Year End Tax Tip

Topics: Individual tax planning

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This communication is designed to provide accurate and authoritative information in regard to the subject matter covered at the time it was published. However, the general information herein is not intended to be nor should it be treated as tax, legal, or accounting advice. Additional issues could exist that would affect the tax treatment of a specific transaction and, therefore, taxpayers should seek advice from an independent tax advisor based on their particular circumstances before acting on any information presented. This information is not intended to be nor can it be used by any taxpayer for the purposes of avoiding tax penalties.

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