College is expensive. With student loans rivaling mortgages, it’s easy to see why it’s a big subject of discussion. Tuition, fees, books, housing, food, and the costs of attending universities are on the rise. My own alma mater, Carnegie Mellon University, was “only” $30,000 when I enrolled in 1998, a pricey sum even back then (generous grants and student loans helped a lot). Today, it costs over $80,000 a year!
If you are looking for a way to offset some of your education costs, the government offers some tax credits designed to help students and their parents. While these tax breaks won’t completely cover the cost of college, they can reduce some of the pain involved.
American Opportunity Tax Credit
The American Opportunity Tax Credit is offered to students who pay qualified tuition (and aren’t claimed as dependents elsewhere) or to parents who pay expenses for their dependent students or themselves. The American Opportunity Credit allows you to claim the credit for the first four years of college on qualified expenses.
This tax credit allows you to claim up to $2,500 per eligible student. The full credit is available for individuals with a MAGI (Modified Adjusted Gross Income) of $80,000 or less and $160,000 for married filing jointly. If your MAGI is over $80,000 but less than $90,000 (over $160,000 but less than $180,000 for married filing jointly), you will receive a reduced amount of the credit. It is 40% refundable, meaning you can get up to $1,000 back even if you don’t owe taxes.
Lifetime Learning Credit
Rather than limiting your ability to get tax credits for education expenses for the first four years of college, it’s possible to use the Lifetime Learning Credit to offset your expenses even in graduate or professional school. As long as the educational institution is qualified, undergraduate or beyond, you can qualify for a credit of up to $2,000 per return for your expenses. It’s figured on 20% of your tuition and fees, up to the first $10,000. There is a phase out as you reach certain income levels. If your MAGI is between $80,000 and $90,000 ($160,000 and $180,000 if you file married filing jointly) for tax year 2022, then the credit will be phased out. You can’t claim the credit if your MAGI is $90,000 or more (or $180,000 or more if married filing jointly If you are a student not claimed as a dependent by your parents or anyone else, then you can claim the credit. Parents can also claim the credit if they claim their child as a dependent or if they are taking classes themselves.
Limitations to These Tax Breaks
Realize that there are limitations to the tax breaks you can take. You can’t claim the American Opportunity and Lifetime Learning credits for the same student in the same year. If you are a parent with multiple dependent students, you can spread these credits around a little bit to maximize your refund.
Don’t worry about knowing which credit you qualify for. Meet with a TurboTax Full Service Expert who can prepare, sign and file your taxes, so you can be 100% confident your taxes are done right. Start TurboTax Live Full Service today, in English or Spanish, and get your taxes done and off your mind.