If you’re concerned about how to find college funding, you should consider tax credits in addition to pursuing college scholarships and grants. This federal aid is designed to help you reduce your federal tax bill by reducing your tax liability one dollar for every dollar of credit you’re eligible for.
As you’re considering your college education, be sure you understand how your income taxes can both affect the amount of college financial aid you’re eligible for and which tax credits can help you reduce your taxes.
A tax credit like the Lifetime Learning Credit can help you pay for college and reduce your dependence on self-help aid, like college loans, which must either be earned beforehand or repaid after you complete your college degree.
What Is the Lifetime Learning Credit?
This tax credit is federal aid designed to help fund a student’s education. Students who are enrolled at a community college or 4-year college or university are eligible for this credit, whether they’re pursuing a bachelors degree or are enrolled in a graduate program, like a masters degree.
This tax credit can only be claimed for education costs such as tuition and related fees and expenses. The maximum credit that can be paid is equal to 20% of the expenses for all eligible family members, up to a maximum of $10,000. In other words, the maximum amount of college money that can be claimed in a year is $2,000.
There are income limitations for claiming this tax credit. If your modified adjusted gross income is $48,000 or under ($96,000 for joint filers), you are eligible for the full amount of this credit. The credit begins to phase out above this income, and if you earn more than $58,000 ($116,000), you are ineligible to claim this credit.
What Are the Benefits of the Lifetime Learning Credit?
There are no restrictions on how many classes you must be taking to qualify for this federal aid. You can claim this credit for college money whether you’re taking one course at a community college or are enrolled in a full-time college program.
More than one person in a family can qualify for this tax credit, although the maximum amount remains the same whether you’re claiming the Lifetime Learning Credit for one or more family members.
College Lifetime Learning Credit Tips & Tactics
- You are unable to claim both the American Opportunity Credit and Lifetime Learning Credit in the same year. Talk to your tax preparer, financial advisor or your college financial aid office to find out which would be most beneficial to you.
- If you’re listed as a dependent on your parents’ tax return, they can claim this credit. However, if you’re not considered a dependent, you can claim this tax credit on your return.
- The terms and exceptions of tax credits like this one change annually. Check the IRS website to stay on top of any changes.
- While a tax credit can offer you significant college savings, do not forget to apply for college scholarships and grants to help pay for school. This gift aid does not need to be repaid and can be pursued while you’re applying to college and after you’ve enrolled.