Education Credits and Deductions (Form 1098-T)

Education tax credits help offset the expenses of higher learning by reducing the tax an individual would owe the IRS and may increase their refund if they have no tax liability. Keep in mind, neither of these credits are available if the taxpayer’s filing status is Married Filing Separately, or if they are claimed as a dependent on someone else’s return. Credits can be claimed for the taxpayer as well as any qualifying dependents.

• The American Opportunity Creditoffers a maximum tax credit of $2500 for qualified education expenses for each qualifying student on a tax return. This credit is available only for the first four years that an individual is in college. Up to 40% of the credit is refundable, which means that if the taxpayer has no tax liability, up to $1000 can be added to their refund. This credit starts to phase out when the taxpayer’s modified AGI reaches $80,000 and is disallowed when their AGI reaches $90,000.
• The Lifetime Learning Creditoffers a maximum credit of $2000 per tax return, regardless of how many qualified students are on the return. This credit is available for any qualified education expenses as long as the student is enrolled in at least one course at an eligible institution. The benefit begins to phase out when the taxpayer’s modified adjusted gross income reaches $50,000 and is disallowed when their AGI reaches $60,000. This credit is non-refundable, meaning the credit will only reduce tax liability. Once the tax liability is reduced to zero, any remaining credit will not be added to the refund.

If you pay college expenses for more than one student in the same year, you can choose to take credits on a per-student, per-year basis. For example, you can claim the American Opportunity Credit for one student and the Lifetime Learning Credit for the other student.

Students are given Form 1098-T to show either payments paid to or billed from an educational facility. If students paid qualified tuition, or if someone paid on the student’s behalf, the student (or if the student is a dependent, the taxpayer) may be able to claim an education credit on their tax return. Students cannot claim an education credit for any amount that was not paid as a qualified tuition or expense. Merely being billed for an expense does not qualify the student for the credit.