The cost of college has been rising steadily for decades, and many students are now graduating with tens of thousands of dollars in debt. While there are a number of financial aid options available to help students pay for college, tax credits can be an especially valuable resource.
There are two main education tax credits that college students and their families can claim: the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC).
The AOTC is a refundable tax credit that can be used to offset the cost of tuition, fees, course materials, and other qualified education expenses. The credit is worth up to $2,500 per eligible student per year, and 40% of the credit can be refunded if the student owes no tax.
To be eligible for the AOTC, the student must:
Be enrolled at least half-time in a degree program at an eligible educational institution.
Not have completed the first four years of higher education.
Not have a felony drug conviction.
The Lifetime Learning Credit
The LLC is a non-refundable tax credit that can be used to offset the cost of tuition, fees, and course materials for postsecondary education. The credit is worth up to $2,000 per tax return per year, regardless of how many students qualify.
To be eligible for the LLC, the student must:
Be enrolled at least half-time in a degree program or other qualified educational institution.
Be paying for tuition and fees out-of-pocket.
Which Tax Credit is Right for You?
In general, the AOTC is the more valuable tax credit for college students. The AOTC is worth more money than the LLC, and it is refundable, meaning that you can get back a portion of the credit even if you owe no tax.
However, there are some cases where the LLC may be a better option. For example, if you have already completed the first four years of higher education, or if you are not paying for tuition and fees out-of-pocket, then you will not be eligible for the AOTC.
How to Claim a Tax Credit for College Students
To claim an education tax credit, you will need to file Form 8863 with your federal income tax return. You will also need to provide documentation of your qualified education expenses, such as a Form 1098-T from your school.
If you have any questions about claiming an education tax credit, you should consult with a tax professional.
Tips for Maximizing Your Tax Credit
Here are a few tips for maximizing your education tax credit:
Make sure that you are eligible for the credit. Review the eligibility requirements for the AOTC and LLC to determine which credit you qualify for.
Keep track of your qualified education expenses. This includes tuition, fees, and course materials. You will need to provide documentation of these expenses when you file your tax return.
Claim the credit as soon as possible. You can claim the AOTC and LLC for up to three years after the year in which the expenses were paid.
Education tax credits can be a valuable financial resource for college students and their families. By claiming these credits, you can reduce the cost of college and make it more affordable to achieve your educational goals.