College Tuition Tax Credits

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The federal government offers parents and students two tuition tax credit programs, Hope/American Opportunity and Lifetime Learning, to help pay for higher education costs. If you meet certain conditions, you can qualify for a reduction on your federal income tax bill. However, you may not claim both the Hope/American Opportunity and the Lifetime credit for the same student in the same year.

What Is a Tax Credit?

Tax credits allow you to subtract, on a dollar-for-dollar basis, the amount of the credit from your total federal income tax bill. Income tax deductions are subtracted from your income before your taxes are calculated. As a result, tax credits usually allow for greater total savings than tax deductions.

The Hope/American Opportunity Tax Credit

With the passage of the American Recovery and Reinvestment Act of 2009 (ARRA, also known as the Stimulus Bill), Congress has expanded the existing Hope tax credit, now called the American Opportunity Credit. The expanded terms will apply to tax years 2009 and 2010. While the Hope Credit could be applied to two years of postsecondary education, the expanded program allows the credit to be claimed for four years, and also expands income eligibility.

To claim this credit, the student must be enrolled at least half-time in a program leading to an undergraduate degree or other legitimate education credential.

The maximum yearly credit per eligible student is $2,500.

The American Opportunity Credit is partially refundable, which means up to $1,000 could be paid back to lower-income taxpayers when the credit exceeds their total tax bill.

There is no limit on how many family members can receive the credit.

The amount of the credit begins to phase out if your modified adjusted gross income (AGI) is between $80,000 and $90,000 or more for a single return and between $160,000 and $180,000 or more for a joint return.

For parents or guardians to claim a Hope credit for their child's college expenses, the student must be listed as a dependent on the tax form. If the student is not listed as a dependent on another person's tax form, he or she can claim the credit.

For exact directions for claiming the American Opportunity credit, and information about a further credit available to students in specified Midwestern disaster areas, consult IRS Publication 970, Tax Benefits for Education.

The Lifetime Learning Tax Credit

This credit is available for all years of postsecondary education and for courses (even a single course) to acquire or improve job skills.

The Lifetime Learning credit can only be used for tuition and fees. The credit can be claimed for 20 percent of the amount you pay (see maximum limits below).

A taxpayer may claim a tax credit for 20% of up to $10,000 in a combination of tuition and fees. This equates to a $2,000 tax credit in 2008 and 2009.

The amount of the credit begins to phase out if your AGI is between $50,000 and $60,000 for a single return and between $100,000 and $120,000 for a joint return.

Consult IRS Publication 970 for specific rules on eligibility and claiming this tax credit.

More Information on Tuition Tax Credits

Additional rules and restrictions apply. For the most up-to-date information visit the Department of Education and the IRS websites. You might also want to consult your tax preparer or financial advisor.

Learn More:

IRS: Topics for Students

IRS Publication 970

Last Modified: 8/5/12