The Internal Revenue Service wants to remind parents and students about tax benefits that can help with the expense of higher education.
Two college tax credits, the American Opportunity Tax Credit and the Lifetime Learning Credit, apply to students enrolled in an eligible college or university. Eligible students include the taxpayer, their spouse and dependents.
American Opportunity Tax Credit
The American Opportunity Tax Credit, (AOTC) can be worth a maximum annual benefit of $2,500 per eligible student. The credit is only available for the first four years at an eligible college for students pursuing a degree. Taxpayers can claim this AOTC for a student enrolled in the first three months of 2018 as long as they paid qualified expenses in 2017.
Lifetime Learning Credit
The Lifetime Learning Credit, (LLC) can have a maximum benefit of up to $2,000 per tax return for both graduate and undergraduate students. Unlike the AOTC, the limit on the LLC applies to each tax return rather than to each student. The course of study must be either part of a post-secondary degree program or taken by the student to maintain or improve job skills. The credit is available for an unlimited number of tax years.
How to Claim the AOTC or LLC
Use Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits). Additionally, if claiming the AOTC, the law requires taxpayers to include the school’s Employer Identification Number on this form.
Form 1098-T, Tuition Statement, is required to be eligible for an education benefit. Students receive this form from the school they attended.
Other Education Benefits
- Student loan interest deduction of up to $2,500 per year.
- Scholarship and fellowship grants that are tax-free if used to pay for tuition, required enrollment fees, books and other course materials, but taxable if used for room, board, research, travel or other expenses.
- Savings bonds used to pay for college. Interest is usually tax-free if bonds were purchased after 1989 by a taxpayer who, at time of purchase, was at least 24 years of age.
- Qualified tuition programs, also called 529 plans, are used by many families to prepay or save for a child’s college education. Contributions to a 529 plan are not deductible.
Keep A Copy of Tax Returns
Taxpayers should keep a copy of their tax return for at least three years. If applying for college financial aid, a tax transcript may be all that is needed. This summarizes return information and includes adjusted gross income. Get one from the IRS for free!
The quickest way to get a copy of a tax transcript is to use the Get Transcript application. After verifying identity, taxpayers can view and print their transcript immediately online. The online application includes a robust identity verification process. Those who can’t pass the verification must request the transcript be mailed. This takes five to ten days, so plan ahead and request the transcript early.