Through the Hope/American Opportunity and Lifetime Learning tax credits, recipients can reduce their federal income tax bill. Keep in mind, though, that you can't claim both of these tax credits in the same year. However, the credits can be applied to multiple people in one household within a year.
First, let's go over the Hope/American Opportunity Tax Credit. When Congress passed the American Recovery and Reinvestment Act of 2009, it expanded the Hope Credit -- now known as the American Opportunity Tax Credit -- for 2009 and 2010. Before, the potential $2,500 credit was available for two years of postsecondary education; now, it can be claimed for four years with an expanded income eligibility [source: The College Board]. Here's how it works:
- Enrollment rule - The student must be enrolled at least half time, working toward an undergraduate degree or legitimate education credit.
- Credit amount - The credit is up to $2,500 and is also refundable up to $1,000, meaning that up to $1,000 could be paid back to lower-income taxpayers when the credit exceeds their tax bill [source: IRS.gov].
- Income requirement - The credit is phased out for individuals with a modified adjusted gross income between $80,000 and $90,000 or greater on single returns, or between $160,000 and $180,000 or greater on joint tax returns [source: USA Funds].
- Credit recipients - If a student's parents/guardians claim him/ her as a dependent, the parents/guardians can claim the credit. If the student claims himself/ herself as a dependent, it is all his/ hers to claim.
Now, turn your attention to the Lifetime Learning Tax Credit. This credit is available for all years of postsecondary education and job skills courses. Here's the scoop:
- Enrollment rule - This credit is available even if the student is taking just one course toward improving job skills. However, the credit can be claimed only on tuition and fees.
- Credit amount - Credit can be claimed for 20 percent of up to $10,000 in tuition and fees [source: IRS.gov].
- Income requirement - The available credit is phased out for people with modified adjusted gross incomes between $50,000 and $60,000 on single tax returns or $100,000 and $120,000 on joint returns[source: The College Board].
- Credit recipients - The same rules apply as for the Hope/American Opportunity Tax Credit.
You now have background on the credits available to you on education expenses. Head to the front of the class -- or just to the next section -- to learn about possible deductions on your scholarly pursuits.