Guidelines For Education Tax Credit

Education tax credits are credits which allow tax payers to subtract the amount of the credit from their total federal income tax bill. In contrast to this, income tax deductions are subtracted from their income before taxes are calculated. As a result, tax credits usually allow for greater total savings than tax deductions

The federal government offers parents and students two education tax credit programs, Hope and Lifetime Learning, to help pay for higher education costs. If one meets certain conditions, he can qualify for a reduction of up to $1,500 on his federal income tax bill.

The Hope tax credit program applies to tuition and fee expenses for the first two years of post-secondary education. The student must be enrolled at least half-time for at least one academic period to claim Hope credit. There is no restriction on number of family members receiving the credit. The amount of the credit starts to phase out if student’s modified adjusted gross income (MAGI) is between $41,000 and $51,000 for a single return and between $82,000 and $102,000 for a joint return. If parents do not claim their ward as an exemption, student himself can claim the Hope credit. To claim the Hope credit, one has to fill up Parts I and III of IRS Form 8863 completely. The education credit figure should be entered in form 1040 or 1040A. Finally, it should be submitted along with tax return.

Lifetime learning tax credit is available for all years of postsecondary education. It is also applicable for courses to acquire or improve job skills. Like the Hope credit, the Lifetime Learning credit can only be used for tuition and fees. The credit can be claimed for 20 percent of the amount paid. The maximum yearly credit is $1,000. As per the calculation method, Lifetime Learning credit increases from $5,000 to $10,000, raising the maximum credit to $2,000. This is the limit per return, and not per student. The family income limits to qualify for the Lifetime Learning credit are the same as for the Hope program. As in case of Hope program, the amount of the credit starts to phase out if MAGI is between $41,000 and $51,000 for a single return and between $82,000 and $102,000 for a joint return.

It is to be noted that one can not claim both a Hope and a Lifetime credit for the same student in the same year.

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