There are federal government tax credit programs available to help people afford higher education. If certain criteria are met, they can reduce the federal income tax bill for your family.
What Is a Tax Credit?
The amount that you can subtract from what you owe in taxes is your tax credit. When paying for college, you may be able to subtract a portion from your tax bill in the future. If your folks are paying your college expenses on your behalf, they will be the ones to receive the tax credit.
Discover the two different programs for tax credits that are available. The tax credit amount varies. It is subject to numerous rules, depending on what you utilize the funds for, which credit you choose and where in the country you reside. You are only allowed to claim one tax credit for the same student per year.
The Lifetime Learning Credit
The funds claimed need to be used for fees and tuition. This credit is an option for graduate or undergraduate programs and even a single course or courses required to improve or acquire job skills.
The American Opportunity Tax Credit
This credit has replaced the Hope credit for 2011 and 2012. The difference is that families who have low incomes and therefore, do not owe a lot of tax, may be eligible to have a portion of the tax credit repaid back to them directly. The credit may be applied to supplies such as course-related books, fees and tuition. To qualify, the student must be in their first four years of post-secondary education. They have to be enrolled at least half-time in a program leading to a legitimate education credential or an undergraduate degree.
Who Can Claim the Tax Credit?
For a tax filer to claim a tuition tax credit for money spent on your college expenses, you must be listed as a dependent on that person’s tax form. If you are not listed as a dependent on another person's tax form — and you’ve laid out money for college expenses — you can claim the credit.