Tuition Tax Credits

Find out how higher education costs can reduce your taxes.

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In addition to offering federal aid in the form of education grants and college loans, the federal government also provides tuition tax credits for families with a college student pursuing a university degree.

How you or your parents fill out your tax returns can make a big difference in your college financial aid, since federal aid uses your family’s assets to help determine how much college money you need. Taking advantage of tax credits for tuition at a college or university will allow you to get a reduction in your federal tax bill.

When it comes to college financial aid, the more tools you have to avoid big college loans that have to be repaid, the better. These tax credits are one way of helping you pay for a college degree.

What Are Tuition Tax Credits?

These tax credits are awarded based on a percentage of the amount of money you spend in a given year on qualified higher education expenses. How do they work? Your tax liability is reduced one dollar for every dollar of credit you’re eligible for. These credits can be used at a community college, 4-year college or university and for graduate programs, like a masters degree.

If you are eligible for a tax credit for your college education, you can subtract the amount of the credit from your federal income tax bill. In most cases, these credits will provide you with larger benefits than a tax deduction.

What Kinds of Tuition Tax Credits Are There?

There are two tuition tax credit programs offered by the federal government to help you pay for college. They are the American Opportunity Credit, which replaces the Hope Credit, and the Lifetime Learning Tax Credit.

To be eligible to claim the American Opportunity Credit, you must be enrolled in a postsecondary education program on at least a half-time basis. This credit can be claimed for the first four years of your postsecondary studies in 2009 and 2010 for tuition costs and certain education-related fees. A maximum of $2,500 in money for college can be claimed this year toward your credit.

The requirements for the Lifetime Learning Credit are a bit less strict than for the American Opportunity Credit. With the Lifetime Learning Credit, a college student does not need to be enrolled part-time or more; any qualified course you take can make you eligible to receive this credit. You can claim up to $2,000 each year in money for college for this credit.

College Tuition Tax Credits Tips & Tactics

  • You’re not able to claim college money for both the American Opportunity Credit and The Lifetime Learning Tax Credit in the same year. If you’re not sure which type of college aid would be more beneficial to you, talk to your tax preparer, financial adviser or the financial aid office at your school.
  • Go to the IRS website for the most up-to-date information on the available federal tax benefits for college education costs.
  • Keep in mind that the American Opportunity Credit was introduced in 2009. If you’re reading college books or looking at websites without up-to-date information, you may not receive accurate information about this tax credit.


People Who Read This Article Also Read:

Tax Breaks for College Students
Tax Benefits for the Graduate Student
The Hope/American Opportunity Tax Credit
Lifetime Learning Credit
Saving for the Future: Long-Term College Planning

See All Saving for College and Tuition Tax Credits Articles

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