Education Credits (October 2016)

Tax Tips

Education Credits

By Michael Aston, E.A.
Alhambra Tax Center

With the kids off to college, this is probably the best time to talk about different education credits. To be eligible for the credit, your child must be considered a qualifying child, and no older than twenty-three.  Please note the credits are not just limited to your dependent -- if you are going to school, you may be eligible too.

American Opportunity Credit (AOC)
The AOC credit could be worth up to $2,500.00 as a credit against your tax liability, with a maximum of 4 years eligibility. To be eligible for the maximum credit, the child must have paid $4000.00 worth of qualifying educational expenses. Based on the IRS qualifying expenses are:

“Tuition, required enrollment fees, and course materials that the student needs for a course of study whether or not the materials are bought at the educational institution as a condition of enrollment or attendance.”

The taxpayer will lose this credit if their Modified Annual Gross Income (MAGI) is more than; married filing joint $180,000 or single/head of household $90,000.

Lifetime Learning Credit (LLC)
The LLC could be worth up to $2,000.00 per tax return. To be eligible for the maximum credit the student must have at least $10,000.00 of qualifying expenses. Based on the IRS qualifying expenses are:

“Qualified education expenses are tuition and certain related expenses required for enrollment in a course at an eligible educational institution.”

The taxpayer will lose this credit if their Modified Annual Gross Income (MAGI) is more than; married filing joint $130,000 or single/head of household $65,000.

Tuition and Fee Deduction (TF)
The TF is not a credit like the AOC and LLC credit discussed above, but is considered a deduction from your taxable income. The maximum deduction would be $4000.00 -- so if you are in a 25% tax bracket, that would equate to approximately $1,000.00 in tax savings. Based on the IRS qualifying expenses would be:

 “Qualified education expenses are tuition and certain related expenses.”  

The taxpayer will lose this credit if their Modified Annual Gross Income (MAGI) is more than; married filing joint $160,000 or single/head of household $80,000.

Some things to remember:

·       The student must be attending qualifying educational institute and be issued a Form 1098T.  

·       The taxpayer is not eligible if filing as Married Filing Separately.

·       Deduct any scholarships or grants as part of the financial aid package.

For example: if Tuition is $12,000.00 and a scholarship is $10,000.00 -- only $2,000.00 can be applied toward the qualifying educational expenses.

This is just a summary of the credits and deductions for education expenses. See IRS Publication 970 or consult your tax professional for more details about education benefits.

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