Are you a student paying tuition? Well, allow me to introduce you to education tax credits you may qualify for!
The more lucrative of the two education tax credits available to Americans who paid tuition is the American Opportunity Tax Credit (AOTC). Although it is tougher to qualify for the AOTC, it does not hold an exhaustive list of the requirements. In order to qualify:
The student for who the tuition was paid must be pursuing a degree, certificate, or other credentials.
The student needs to be enrolled on at least a half-time basis.
The student must be completing one of their first four years of post-secondary education.
In addition, AOTC has income restrictions. The taxpayer claiming the credit must have a modified adjusted gross income or AGI of $160,000 or less if filing a joint return, or $80,000 or less if they file under any other status, in order to receive the full credit. If the taxpayer has modified AGI of more than $180,000 (joint) or $90,000 (all others), they can't claim the credit at all.
If qualified, the AOTC is worth:
100% of the first $2,000 of qualified higher education expenses
25% of the next $2,000 of qualified higher education expenses
This means that the maximum AOTC is $2,500 annually, per qualified student. Parents who pay tuition for more than one qualifying student can claim the AOTC for each one. Finally, the AOTC is a partially refundable tax credit – as much as $1,000 of the credit can be paid to taxpayers, even if they have no tax liability at all.
The second education tax credit is the Lifetime Learning Credit or LLC and can be taken for almost any higher education expenses, even if you take a single course at your local college for no reason other than you were interested in the subject matter.
Although it may be easier to qualify for, the LLC is significantly more restrictive than the AOTC when it comes to income. Taxpayers must have AGI of $118,000 or less (joint filers) or $59,000 or less (all others) in 2020 to claim their full LLC. The credit disappears entirely for AGI over $138,000 or $69,000, respectively.
If you qualify, the LLC is worth 20% of as much as $10,000 in qualified higher education expenses. So, if you paid $4,000 for tuition and other qualifying expenses in 2020, the LLC could reduce your tax bill by as much as $800.
If you'd like to receive more information or think you may qualify for an education tax credit, give us a call at 909.938.1445 or email us at taxmdservices@gmail.com