Education tax benefits may help your clients with college costs

Please remind your clients that if they are paying higher education costs for themselves, a spouse or a dependent, they may be eligible to save some money with education tax credits or the Tuition and Fees Deduction. Here are some facts about tax credits for higher education:

The American Opportunity Tax Credit (AOTC) is:

  • Worth a maximum benefit up to $2,500 per eligible student
  • Only for the first four years at an eligible educational or vocational institution
  • For students pursuing a degree or other recognized education credential
  • Partially refundable. Taxpayers can potentially get up to $1,000 back

The Lifetime Learning Credit (LLC) is:

  • Worth up to $2,000 per tax return, per year, no matter how many students qualify
  • Available for all years of postsecondary education and for courses to acquire or improve job skills
  • Available for an unlimited number of tax years

Remember, to claim the AOTC or LLC, taxpayers must use Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits). Additionally, if they claim the AOTC, the law requires taxpayers to include the school’s Employer Identification Number on this form.

If they do not qualify for the AOTC or LLC, your clients may still benefit from the Tuition and Fees Deduction:

  • They may be able to deduct qualified education expenses paid during the year for themselves, their spouse, or their dependent(s). The qualified expenses must be for higher education.
  • Taxpayers cannot claim this deduction if their filing status is married filing separately or if another person can claim them as a dependent on their tax return. 
  • The Tuition and Fees Deduction can reduce the amount of their income subject to tax by up to $4,000. This means they can claim this deduction even if they don't itemize deductions on Schedule A (Form 1040).

To be eligible to claim the Tuition and Fees Deduction, American Opportunity Tax Credit or Lifetime Learning Credit, the law requires taxpayers (or their dependents) to have received a Form 1098-T, Tuition Statement, from an eligible educational institution. There are exceptions for some students.

For a complete explanation of all education benefits, read IRS Publication 970, Tax Benefits for Education.

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