PHOENIX — The Internal Revenue Service is reminding parents and students that now is a good time to find out if they qualify for either of two college tax credits when they file their 2015 federal income tax return next year.
“Many of those eligible for the American Opportunity Tax Credit qualify for the maximum annual credit of $2,500 per student for the cost of tuition, fees and course materials paid during the tax year,” said IRS spokesperson Bill Brunson. “Up to $1,000 is refundable, which means you can get the credit even if you owe no tax.”
In general, the American Opportunity Tax Credit or Lifetime Learning Credit is available to taxpayers who pay qualifying expenses for an eligible student. Eligible students include the taxpayer, spouse and dependents.
American Opportunity Tax Credit is available for each eligible student, while the Lifetime Learning Credit provides a maximum credit per tax return.
In 2014, approximately 101,100 Utah taxpayers claimed the American Opportunity Tax Credit, worth more than $84.6 million on their taxes. For this same period, approximately 107,800 Utah taxpayers claimed the Lifetime Learning Credit, resulting in more than $103 million in tax savings.
Nationwide, 10.2 million taxpayers claimed the American Opportunity Tax Credit, while 10 million claimed the Lifetime Learning Credit in 2014. Both credits combined helped taxpayers offset higher education costs by slightly less than $19.6 billion.
“Generally, a credit that reduces your tax or increases your refund is the best,” Brunson said. “Look at all your options and see what helps you the most.”
A taxpayer often qualifies for both of these educational credits, but the rules say that only one credit can be claimed for the same student in the same tax year.
Use Form 1040 or 1040A and complete Form 8863, Education Credits to claim either credit.
The credits apply to eligible students enrolled in an eligible college, university or vocational school, including both nonprofit and for-profit institutions.
The credits are subject to income limits that may reduce the amount claimed on the tax return.
The Lifetime Learning Credit, which is worth up to $2,000 per tax return, is available for both graduate and undergraduate students. Unlike the American Opportunity Tax Credit, the limit on the Lifetime Learning Credit applies to each tax return, rather than to each student.
Also, the Lifetime Learning Credit does not provide a benefit to people who owe no tax.
To help determine eligibility for these benefits and for complete details on all of the tax benefits for education, visit the Education Credits web page or use the IRS’s Interactive Tax Assistant tool. Both are available on IRS.gov.
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