With back-to-school season in full swing, the Internal Revenue Service
reminds parents and students about tax benefits that can help with the expense
of higher education.
Two college tax credits apply to students enrolled in an eligible college,
university or vocational school. Eligible students include the taxpayer, their
spouse and dependents.
American Opportunity
Tax Credit
The American
Opportunity Tax Credit, (AOTC) can be worth a maximum annual benefit of
$2,500 per eligible student. The credit is only available for the first four
years at an eligible college or vocational school for students pursuing a
degree or another recognized education credential. Taxpayers can claim the AOTC
for a student enrolled in the first three months of 2018 as long as they paid
qualified expenses in 2017.
Lifetime Learning
Credit
The
Lifetime Learning Credit, (LLC) can have a maximum benefit of up to $2,000
per tax return for both graduate and undergraduate students. Unlike the AOTC,
the limit on the LLC applies to each tax return rather than to each student.
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. The credit is available
for an unlimited number of tax years.
To claim the AOTC or LLC, use Form
8863, Education Credits (American Opportunity and Lifetime Learning
Credits). Additionally, if claiming the AOTC, the law requires taxpayers to
include the school’s Employer Identification Number on this form.
Form 1098-T, Tuition Statement, is required to be eligible for an education
benefit. Students receive this form from the school they attended. There are
exceptions for some students.
Other education
benefits
Other education-related tax benefits that may help parents and students are:
- Student loan interest deduction of up to $2,500 per year.
- Scholarship and fellowship grants. Generally, these are
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.
- 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 of age.
- Qualified tuition programs, also called 529 plans, are
used by many families to prepay or save for a child’s college education.
Contributions to a 529 plan are not deductible, but earnings are not
subject to federal tax when used for the qualified education expenses.
To help determine eligibility for these benefits, taxpayers should use tools
on the Education
Credits Web page and IRS Interactive
Tax Assistant tool on IRS.gov.
Keep A Copy of Tax
Returns
Taxpayers should keep
a copy of their tax return for at least three years. Copies of tax returns
may be needed for many reasons. If applying for college financial aid, a tax
transcript may be all that is needed. A tax transcript summarizes return
information and includes adjusted gross income. Get one from the IRS for free.
The quickest way to get a copy of a tax transcript is to use the Get
Transcript application. After verifying identity, taxpayers can view and
print their transcript immediately online. The online application includes a robust
identity verification process. Those who can’t pass the verification must
request the transcript be mailed. This takes five to 10 days, so plan ahead and
request the transcript early.
Additional IRS
Resources:
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