How Tuition Tax Credits Work

The Lifetime Learning Credit

The Lifetime Learning Credit covers up to $2,000 of tuition and related expenses for undergraduate and graduate education. It also applies to other courses taken at an approved educational institution that are aimed at helping students enhance their job-related skills. There are no age requirements and the student need not actually obtain a degree in order to take advantage of this credit. If you receive an IRS Form 1098-T at the end of the year -- or, more likely, the end of January the following year -- your school is likely approved for LLC and AOTC purposes [source: IRS].

The credit is available to eligible students and other tax filers like parents and guardians who claim an eligible student as a dependent. The amount of the credit is 20 percent of the first $10,000 in eligible expenses. That includes money spent on tuition, books and other course materials [source: IRS].

Like the AOTC, the LLC limits eligibility based on income. It's designed to help students and families hit the hardest by educational expenses. In 2014, the LLC can be claimed by single tax filers who make $52,000 or less in modified adjustable gross income over the year. The limit jumps to $104,000 for spouses and other joint tax filers. People who make between $52,000 and $62,000 ($124,000 for joint filers) can claim some of the credit, at a reduced amount [sources: IRS].

Unlike the AOTC, the LLC isn't refundable. If you don't owe the government anything at the end of the year, Uncle Sam won't send you a check for the money that you would otherwise be credited under the LLC. To avoid losing out on the credit, tax filers may consider reducing the amount that they get withheld from paychecks and other sources of income.