As the new school year approaches, students think about what courses to take and how much the courses will cost. Whether it’s a community college, trade school, four-year university, or graduate school, higher education is expensive. The good news is that tax credits can help offset these costs.
These credits reduce the amount of tax that a person owes. If the credit reduces the tax to less than zero, the taxpayer could even receive a refund.
Taxpayers who pay for higher education in 2021 can see these tax savings when they file their tax return next year. If taxpayers, their spouses or dependents attend post-secondary education, they may be entitled to a tax benefit.
There are two credits available to help taxpayers save money on higher education, the U.S. opportunity tax credit and the lifelong learning credit. Taxpayers use Form 8863, Education credits, to claim the credits.
Here are some important things taxpayers should know about these credits.
The U.S. opportunity tax credit is:
- Maximum value of $ 2,500 per eligible student.
- Only for the first four years at a qualifying college or vocational school.
- For students pursuing a diploma or other recognized educational qualification.
- Partially refundable. People could get up to $ 1,000.
The Lifetime Learning Credit is:
- Worth a maximum of $ 2,000 per tax return, per year, regardless of the number of eligible students.
- Available for all years of post-secondary studies and for vocational skills development or improvement courses.
- Available for an unlimited number of tax years.
To be eligible for any of these credits, a taxpayer or dependent must have received a Form 1098-T from an eligible educational institution. There are exceptions for some students.
Taxpayers can use the Interactive tax assistant on IRS.gov to find out if they are eligible for these credits.