WASHINGTON ― With another school year just around the corner, the Internal
Revenue Service today reminded parents and students that now is a good time to
see if they will qualify for either of two college tax credits or other
education-related tax benefits when they file their 2015 federal income tax
returns.
In general, the
American
Opportunity Tax Credit or Lifetime Learning Credit is available to
taxpayers who pay qualifying expenses for an eligible student. Eligible
students include the taxpayer, spouse and dependents. The American Opportunity
Tax Credit provides a credit for each eligible student, while the Lifetime
Learning Credit provides a maximum credit per tax return.
Though a taxpayer often qualifies for both of these credits, he or she can
only claim one of them for a particular student in a particular year. To
claim these credits on their tax return, the taxpayer must file Form 1040 or
1040A and complete
Form
8863, Education Credits.
The credits apply to eligible students enrolled in an eligible college,
university or vocational school, including both nonprofit and for-profit
institutions. The credits are subject to income limits that could reduce the
amount claimed on their tax return.
To help determine eligibility for these benefits, taxpayers should visit the
Education
Credits Web page or use the IRS’s
Interactive
Tax Assistant tool. Both are available on IRS.gov.
Normally, a student will receive a
Form
1098-T from their institution by Jan. 31 of the following year. (For 2015,
the due date is Feb. 1, 2016, because otherwise it would fall on a Sunday.)
This form will show information about tuition paid or billed along with other
information. However, amounts shown on this form may differ from amounts
taxpayers are eligible to claim for these tax credits. Taxpayers should see the
instructions to Form 8863 and
Publication
970 for details on properly figuring allowable tax benefits.
Many of those eligible for the
American
Opportunity Tax Credit qualify for the maximum annual credit of $2,500 per
student. Students can claim this credit for qualified education expenses paid
during the entire tax year for a certain number of years:
- The credit is only available for four tax years per
eligible student.
- The credit is available only if the student has not
completed the first four years of postsecondary education before 2015.
Here are some more key features of the credit:
- Qualified
education expenses are amounts paid for tuition, fees and other
related expenses for an eligible student. Other expenses, such as room and
board, are not qualified expenses.
- The credit equals 100 percent of the first $2,000 spent
and 25 percent of the next $2,000. That means the full $2,500 credit may
be available to a taxpayer who pays $4,000 or more in qualified expenses
for an eligible student.
- Forty percent of the American Opportunity Tax Credit is
refundable. This means that even people who owe no tax can get an annual
payment of up to $1,000 for each eligible student.
- The full credit can only be claimed by taxpayers whose
modified adjusted gross income (MAGI) is $80,000 or less. For married couples
filing a joint return, the limit is $160,000. The credit is phased out for
taxpayers with incomes above these levels. No credit can be claimed by
joint filers whose MAGI is $180,000 or more and singles, heads of
household and some widows and widowers whose MAGI is $90,000 or more.
The Lifetime Learning Credit of up to $2,000 per tax return is available for
both graduate and undergraduate students. Unlike the American Opportunity Tax
Credit, the limit on the Lifetime Learning Credit applies to each tax return,
rather than to each student. Also, the Lifetime Learning Credit does not
provide a benefit to people who owe no tax.
Though the half-time student requirement does not apply to the lifetime
learning credit, the course of study must be either part of a post-secondary
degree program or taken by the student to maintain or improve job skills. Other
features of the credit include:
- Tuition and fees required for enrollment or attendance
qualify as do other fees required for the course. Additional expenses do
not.
- The credit equals 20 percent of the amount spent on
eligible expenses across all students on the return. That means the full
$2,000 credit is only available to a taxpayer who pays $10,000 or more in
qualifying tuition and fees and has sufficient tax liability.
- Income limits are lower than under the American
Opportunity Tax Credit. For 2015, the full credit can be claimed by taxpayers
whose MAGI is $55,000 or less. For married couples filing a joint return,
the limit is $110,000. The credit is phased out for taxpayers with incomes
above these levels. No credit can be claimed by joint filers whose MAGI is
$130,000 or more and singles, heads of household and some widows and
widowers whose MAGI is $65,000 or more.
Eligible parents and students can get the benefit of these credits during
the year by having less tax taken out of their paychecks. They can do this by
filling out a new
Form
W-4, claiming additional withholding allowances, and giving it to their
employer.
There are a variety of other education-related tax benefits that can help
many taxpayers. They include:
- Scholarship and fellowship grants — generally tax-free
if used to pay for tuition, required enrollment fees, books and other
course materials, but taxable if used for room, board, research, travel or
other expenses.
- Student loan interest deduction of up to $2,500 per
year.
- Savings bonds used to pay for college — though income
limits apply, interest is usually tax-free if bonds were purchased after
1989 by a taxpayer who, at time of purchase, was at least 24 years old.
- Qualified tuition programs, also called 529 plans, used
by many families to prepay or save for a child’s college education.
Taxpayers with qualifying children who are students up to age 24 may be able
to claim a dependent exemption and the
Earned
Income Tax Credit.
The general comparison table in Publication 970
can be a useful guide to taxpayers in determining eligibility for these
benefits. Details can also be found in the Tax
Benefits for Education Information Center on IRS.gov.
