Higher education costs are continuing to soar with no end in sight. Over the past decade, tuition at public four-year universities has risen by 35 percent, according to the Center on Budget and Policy Priorities. The average annual cost for tuition, fees, and room and board at a four-year public college for in-state students now tops $20,000, according to Trends in College Pricing 2019, published by College Board.
But there’s a valuable tax credit many people aren’t aware of that can help lessen the sting of rising college education expenses. The Lifetime Learning Credit offers a tax credit of up to 20 percent of the first $10,000 (up to a maximum credit of $2,000) in qualifying education expenses for individuals and families that qualify.
Who Can Claim the Lifetime Learning Credit?
The Lifetime Learning Credit is available to parents who paid college education expenses for a qualified dependent (or themselves) during the preceding year. This includes tuition, fees, books, supplies and other course materials.
In order to claim the Lifetime Learning Credit, your modified adjusted gross income (or MAGI) cannot exceed certain levels. For tax year 2019, you can’t claim the credit if your MAGI is above $68,000 for single filers or $136,000 for married couples filing jointly. (You can’t claim the credit if you’re married and file taxes separately.)
If your MAGI is between $58,000 and $68,000 if you’re single — or between $116,000 and $136,000 if you’re married and file jointly — you can claim a partial Lifetime Learning Credit. Here are a few more criteria for claiming the credit:
- You cannot be claimed as a dependent on anyone else’s tax return.
- The student for whom the credit is being claimed must have been enrolled at an eligible educational institution for at least one academic period beginning in the tax year for which the credit is being claimed.
- Eligible educational institutions include colleges, universities, trade schools and other post-secondary institutions eligible to participate in student aid programs run by the U.S. Department of Education.
- The coursework was postsecondary and geared toward obtaining a degree or recognized education credential or designed to help the student obtain or improve job skills.
How to Claim the Lifetime Learning Credit
You should receive a tuition statement (IRS Form 1098-T) from the qualifying educational institution you paid expenses to no later than January 31 listing the college expenses you paid. If you received any tax-free education assistance for the student — such as scholarships, fellowships or grants — you must subtract this from the credit amount.
If you meet the qualification criteria, you will fill out IRS Form 8863 with the relevant information from Form 1098-T and then file this form along with your tax return. Remember that the credit only applies to the first $10,000 in qualifying expenses and is capped at 20 percent of expenses or a total of $2,000.
For example, if your qualified expenses total $10,000 or more and you qualify for the full credit, your credit would be $2,000. But if your expenses total just $5,000, your credit would be $1,000 (.20 x 5,000).
The Lifetime Learning Credit vs. the American Opportunity Tax Credit
Don’t confuse the Lifetime Learning Credit with American Opportunity Tax Credit, a similar tax credit for qualifying educational expenses. The latter can only be claimed during the first four years of college or other qualifying type of higher education. The Lifetime Learning Credit can be claimed for graduate studies as well.
Also note that you can’t claim both the Lifetime Learning Credit and the American Opportunity Tax Credit for the same student’s qualifying education expenses, though you can claim them both for different students’ expenses. If you qualify for both credits, figure out which one offers the most benefit and claim that one.
Lessen the Burden of Paying for College
The Lifetime Learning Credit can help lessen the burden of college costs for your family if you qualify for it. Visit the IRS website to learn more about the Lifetime Learning Credit.