Newsletter | August
College Tuition Tax Credits
With school starting back soon, we think this is a good time to talk about tuition tax credits, what costs qualify for the credit, and what you need to do to get the credit.
First of All, What Is a Tax Credit?
A tax credit is a direct reduction in tax liability and is better than a deduction. Unlike a deduction that only reduces the amount of your taxable income; a tax credit directly reduces the amount of tax you owe.
Who Can Claim the Tax Credit?
If parents pay college expenses, they get the tax credit. A family may not claim more than one credit for the same student in any one year. For a tax filer to claim a tuition tax credit for money spent on a child’s college expenses, the child must be listed as a dependent on that person’s tax form. If the child is not listed as a dependent on another person's tax form, and the child has paid money for college expenses, the child can claim the credit.
What Tuition Tax Credits are Available?
There are three different tuition tax credit programs. The amount of the credit varies and is subject to a number of rules, depending on which credit you use and what you use the money for.
- Hope Credit: Only money spent on tuition and fees can be claimed. The student must be in the first two years of postsecondary education and enrolled at least half-time in a program leading to an undergraduate degree or other legitimate education credential.
- American Opportunity Credit: This is a modification of the Hope credit for 2009 and 2010. One difference is that families who owe very little tax or no tax (because their incomes are low) may be able to get some of the credit paid back to them directly. Also, the credit can be applied to course-related books and supplies, in addition to tuition and fees. The student must be in the first four years of postsecondary education and enrolled at least half-time in a program leading to an undergraduate degree or other legitimate education credential.
- Lifetime Learning Credit: The money claimed must have been used for tuition and fees. This credit is available for undergraduate or graduate programs and for courses (even a single course) to acquire or improve job skills.
Where Can I get More Information on Tuition Tax Credits?
Additional rules and restrictions apply. Call us at Roth CPA & Associates, if you have questions related to your specific situation.
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