Student Education Tax Credits - Whats it all about?

The American Opportunity Credit and the Lifetime Learning Credit are currently the two major education credits provided by the government to help students lessen the cost of higher education. Bear in mind that Tax credits are different from tax deductions, as credits often worth more because it lessens the tax bill dollar-for-dollar. On the other hand, deductions merely lessen the taxable income.

In case the student is eligible to claim the American Opportunity tax credit for educational expenses, it will enable a maximum of 40% of the credit to be used as payment of his/her taxes. Remember that upon preparing your tax electronically, the eFile.com tax app will automatically compute individually the refundable and non-refundable part of the whole educational credit in order to e-File the taxes with the corresponding return. It will be shown in Form 8863.

The American Opportunity Credit 

The American Opportunity credit worth more than the other educational credit that is available as of now. It is an enlarged version of the Home Credit. The following list will give as information with regards to this tax credit that we must be aware of:

• This tax credit only covers the first year up to the fourth year of post-secondary education in a university, college, and vocational school, non-profit and for-profit institutions.
• Each qualified student can get up to $2500 every year.
• For the first accumulated qualified expenses including tuition and some required fees amounting to $2000 will be covered 100% by the credit, to top up with another 25% for the following $2000.
• In cases in which a qualified student has no tax payables, we can claim up to $1000 as a tax refund because 40% of this credit is refundable.
• A student must be enrolled and was able to finish half of the academic period which starts within the tax period to be able to qualify for the tax credit.
• The maximum modified adjusted gross income (MAGI) of a Married Filing Jointly is equal to $180,000 while for Single, Head of Household or Qualifying Widow(er) can claim up to $90,000 for the tax year 2019 which is much higher compared to 2018 MAGI which only gives a $160,000 and $80,000 respectively.
• A person can only claim the educational expenses if he/she paid it by himself, his/her spouse or dependent. Take note that if the person claiming for the credit is already registered as someone else’s dependent will not be eligible for the claim.
• Expenses for boarding and room are not considered as qualified expenses, it only covers expenses such as tuition and mandatory fees, books, supplies, equipment, and other required course materials.
• By the end of the tax season, a student accused of any felony drug will be automatically disqualified for the American Opportunity Credit claim.

The Lifetime Learning Credit

In case you and your family members (spouse, dependents) is not eligible for the American Opportunity Credit, you may further deduct your educational expenses through the Lifetime Learning Credit but this credit type is not refundable unlike the later. The following list will give as information with regards to this tax credit that we must be aware of:

• Those who are undergraduate, graduate, and those who take professional degree courses and post-graduate courses that aim to enhance their job skills can apply in this educational credit.
• Each year, a qualified student can deduct up to $2000.
• The number of years the credit can be claimed is limitless. it is open for anyone who is in their post-secondary education/(regardless of year) and to that grown-up which continues their educational courses.
• As long as the student is enrolled he/she can apply for the claim as there is no lower limit required.
• The calculation of the deductible amount for this credit is per year not per student. 20% of the first $10,000 of the total tuition and fees for post-secondary education will be covered, it will not exceed $2000.
• The maximum modified adjusted gross income (MAGI) of a Married Filing Jointly is equal to $136,000 while for Single, Head of Household or Qualifying Widow(er) can claim up to $68,000 for the tax year 2019 which is much higher compared to 2018 MAGI which only gives an $110,000 and $55,000 respectively.
• This credit will only minimize your tax payable and will not return any amount as it is non-refundable.
• A person can only claim the qualified expenses if he/she paid it by himself (if not claimed as a dependent of another person), his/her spouse or dependent. 
• Expenses for boarding and room are not considered as qualified expenses, it only covers expenses such as tuition, fees, books, supplies, equipment, and other course materials provided that it is needed.
• A student accused of any felony drug can still apply for Lifetime Learning Credit.

A Taxpayer can only claim one of the two educational credits for every student in a year. However, they can avail each educational credit for different students. Bear in mind that among the two credits, American Opportunity Credit worth more, although it is only helpful in the first four years of higher education and has tighter enrollment terms. In case you are eligible for the Lifetime Learning Credit to take note that there is no limit on the number of years you can apply for its credit however there will be stricter income limits. 

Eligible Educational Institution

The school that provides a higher education aside from high school can be classified as an Eligible Educational Institution. Each and every college, university, trade school, and other post-secondary educational institution qualifies to take part in a student aid program initiated by the U.S. Department of Education