Have you been thinking about going back to school full-time, taking a few classes, or earning a professional certificate? Even if you graduated college in 1991 like me, you might qualify for a Lifetime Learning Credit of up to a maximum amount of $2,000 per year, with no limit on the number of years you can claim it. You can utilize the Lifetime Learning Credit for yourself, your spouse, and your dependents as long as the students attend eligible educational institutions and use it on qualified education expenses.
It is a great way to make postsecondary education more affordable for those under certain earning levels. Whether you are college-age or a mature student, it can lower your higher education expenses. Not everyone can qualify for the Lifetime Learning Credit. Here’s what you need to know about this education tax credit and your eligibility.
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What Is the Lifetime Learning Credit?
The Lifetime Learning Credit began as one of the new education tax benefits under the Taxpayer Relief Act of 1997. Other benefits were the Hope Credit (now called the American Opportunity Tax Credit), educational IRAs, and interest deductions for student loans.
The Lifetime Learning Credit is a tax credit, so it reduces the amount of federal income taxes owed dollar-for-dollar on your federal tax return. It does not reduce your taxable income, like a tax deduction. You can take the Credit even if you take the standard tax deduction and don’t itemize your deductions.
Under the Lifetime Learning Credit, you can claim 20% of up to $10,000 in yearly educational costs, with a maximum amount of $2,000 per return. The tax credit is per year, not per student. For example, if you have two students, you cannot claim $4,000. The Lifetime Learning Credit is nonrefundable. This means you can pay your tax bill with the credit but won’t receive any money back as a refund. For instance, if you owe $1500 in federal income taxes and claim the annual maximum Lifetime Learning Credit of $2,000, the IRS will not refund the $500 difference.
The number of years you can take the Credit is unlimited, unlike other education tax credits. For instance, the American Opportunity Tax Credit is limited to the first four years a student attends a postsecondary education institution. You can continue to claim the Lifetime Learning Credit if you decide to take additional courses as long as you meet the other eligibility criteria.
Who Qualifies for the Lifetime Learning Credit?
Students and their families can qualify to claim the Lifetime Learning Credit on their federal tax returns if they meet the following criteria:
- Be enrolled or take courses at an eligible educational institution found in the Database of Postsecondary Institutions and Programs or the Federal Student Loan Program list. Eligible institutions include colleges, universities, and trade schools.
- Take courses towards a degree, certificate, or to gain or improve job skills. You may qualify even if you take one class!
- Be enrolled for at least one academic period (semester, trimester, quarter, or payment period) during the tax year you are claiming the credit.
Only certain education expenses, such as tuition, textbooks, required supplies, and mandatory enrollment fees, qualify for the Lifetime Learning Credit. Other college costs such as room and board, transportation, and medical expenses aren’t eligible.
What Is the Income Limit?
Since the Taxpayer Relief Act of 1997 was aimed at helping middle-income and low-income taxpayers, there are income limits for the Lifetime Learning Credit. For the tax year 2020, you could receive the full credit if your modified adjusted gross income (MAGI) was under $59,000 if you filed singly or under $118,000 for married filing jointly. The credit gradually phases out between a MAGI range of $59,000 and $69,000 for single filers ($118,000 and $138,000 if you file a joint tax return). However, you may receive a partial credit. If your income is over $69,000 singly (or $138,000 with a joint tax return), you are ineligible to receive the Lifetime Learning Credit. You are also ineligible if you file your taxes married filing separately.
How to Claim the Lifetime Learning Credit
Claiming the Lifetime Learning Credit is pretty straightforward whether you use an accountant or do your taxes yourself. Most tax software programs will lead you through questions to see if you qualify.
The law requires an institution to send you a Form 1098-T, Tuition Statement. You will receive it by January 31st of the year after the tax year in question. It usually will also be in the document section of the student’s college dashboard online. The form will list payment totals for tuition and fees paid during the tax year.
You must complete your Form 1040 or 1040-SR. Next, fill out your Form 1040-Individual Income Tax Return or the 1040-SR-Tax Return for Seniors. These forms have to be completed every year and filed with your tax return ahead of the annual deadline in April.
The last step is to complete Form 8863-Education Credits and submit it with your tax return. A tax prep software program will ask you the questions necessary to see if you qualify and submit Form 8863 with your taxes if you do.
Essential Things to Remember about Claiming the Lifetime Learning Credit
To claim the entire $2,000 learning tax credit, you must have spent at least $10,000 on qualified expenses in the tax year you are claiming it. If you pay less, the credit will be 20% of the amount spent.
The maximum amount of the Lifetime Learning Credit per tax return is $2,000. This is not per student; it is per return per tax year. If you have two dependent students for who you paid qualified educational costs of over $10,000 each, you would still only get the maximum of $2,000. $10,000 is the collective cap for each tax year.
The great news is there is no limit on the number of years you can claim it, unlike some other educational tax credits. Theoretically, if you met the income requirement and enrolled at eligible schools, you could take classes every year. This is an excellent opportunity to improve your job skills or switch jobs with continuing education.
Some Final Thoughts
The Lifetime Learning Credit offers a great chance to save students and parents some money on educational costs. It can make college and continuing education for job advancement more affordable for lower and middle-income students. Even mature learners can take advantage of it to further their careers.
Want to learn more about the Lifetime Learning Credit? The Internal Revenue Service has an up-to-date page, including tools including an Interactive Education Credit app to help you determine your eligibility.
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Christine Seaver is a freelance writer that writes about personal finance, budgeting, and debt. She is a frequent contributor at Dividendpower.org. Christine works as an office manager by day and a cookie baker at night. She lives in Massachusetts with her family.