Earn Credits In More Ways Than One This School Year
Don't miss out on these higher education tax credits!
Back-to-school season has officially begun, and higher education continues to be a financial burden for so many in the United States. With no certain debt relief in sight, the IRS urges eligible taxpayers to take advantage of two important higher education credits: the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC).
While each credit has its own rules, there are three main requirements any student must meet to claim either credit:
The eligible student has to be you, your spouse, or a dependent listed on your tax return.
The eligible student has to be enrolled at an eligible education institution.
You, your dependent, or a third party has to pay qualified education expenses.
If you claim the AOTC, ensure that you are qualified. Remember to keep copies of any documentation proving you qualify and approving your credit amount. In the event that your return is audited and the IRS questions your claim, this documentation will be vital in proving your eligibility and preventing you from incurring fees, penalties, and potentially loss of access to the credit.
The AOTC offers a maximum of $2,500 credit per eligible student, 40% of which is refundable. This means that if the credit brings the amount you owe on your tax return to zero, then 40% of the amount of credit remaining will be refunded to you. You cannot claim the benefit if you can be listed as a dependent on someone else's tax return or if you are considered a nonresident alien for tax purposes. The credit can be claimed for 4 tax years only if the student has not completed 4 years of post-secondary education before 2022. The eligible student must be enrolled at least half-time for at least one academic period in pursuit of a degree or recognized education credential.
Most of these rules also apply for the LLC, with a few exceptions. If you claim the LLC, you could receive a nonrefundable credit of up to $2,000 per return. It can apply to all years of higher education and courses to improve job skills. The eligible student is not required to be in pursuit of a degree or education credential.
For both of these credits, you'll need several forms, including a Schedule 3 of Form 1040, Form 8863 for Education Credits and Form 8863 for Instructions.
Have an awesome semester, everyone!