Back-to-School: Education Tax Benefits to Offset Education Costs

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 overall costs of attending universities are on the rise. 

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 financial burden involved.

American Opportunity Tax Credit

The American Opportunity Tax Credit (AOTC) is offered to students who pay for tuition costs and aren’t claimed as dependents elsewhere or to parents who pay for their own or their dependent’s educational expenses. The American Opportunity Credit allows you to claim the credit for the first four years of college on qualified expenses at an eligible institutions. In order to take advantage of this credit, you must be pursuing a degree and be enrolled at least half time for at least one academic period per year. 

If you qualify, this tax credit allows you to claim up to $2,500 per eligible student. The amount of the credit is calculated using 100 percent of the first $2,000 of qualified education expenses for each eligible student and 25 percent of the next $2,000 of qualified education expenses you paid for that student. 

The full credit is available for individuals with a MAGI (Modified Adjusted Gross Income) of $80,000 or less ($160,000 if 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), your credit is phased out. This means that you will receive a reduced amount of the credit. 

Lastly, this credit is also 40% refundable, which means that you can get up to $1,000 back even if you don’t have a tax liability.

Lifetime Learning Credit

If you are looking for a tax credit for education costs beyond the first four years of college, the Lifetime Learning Credit (LLC) may be able to offset your expenses even if you are enrolled in graduate or professional school. Similar to the AOTC, this credit is offered to students who are not claimed as dependents elsewhere or to parents who cover their own or their dependent’s educational expenses. 

In order to take this credit, you must be taking courses in order to complete a degree, educational credential, or to get or further improve job skills. As with the AOTC, the educational institution must also be an eligible institution.

With this credit, you can qualify for a credit of up to $2,000 per return for your expenses. The credit is calculated on 20% of your tuition and fees up to the first $10,000. This credit is not refundable. 

As with the AOTC, 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 2024, 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).

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.

No matter what moves you made last year, TurboTax will make them count on your taxes. Whether you want to do your taxes yourself or have a TurboTax expert file for you, we’ll make sure you get every dollar you deserve and your biggest possible refund – guaranteed.