Now you can avail tax credits on money paid for your own or your dependent’s post-high school education, thus getting a significant tax break.
The purpose of this tax credit is to reduce the cost incurred on your or your dependent’s higher education. In turn, you will owe lesser in tax liabilities when you file your return for the 2019 tax season. More importantly, you might be eligible to receive a refund, if your credits take your tax liabilities to zero or less.
Let us take a look at these very exciting tax credits and how they can help you by reducing your tax liabilities.
The two types of higher education tax credits
The IRS has announced two types of tax credits that can help you ease out the cost of higher education. These are: –
- American Opportunity Tax Credit
- Lifetime Learning Credit
How can you apply for this credit?
To avail of any one of the above two tax credits, you would be required to fill the Form 8863 — Education Credits and attach it to your income tax returns.
What is the eligible tax year to claim this credit?
If you are bearing your own or a dependent’s higher education expenses, then you are eligible to claim this tax credit when you file your 2019 federal income tax returns in 2020. This tax credit might also be claimed for any post-high school course work pursued by you, your spouse or your ward.
What makes you eligible for this Higher Education Tax Credit?
The only requirement is receiving the Form 1098-T from your school or college, which should be an eligible educational institution.
What is the difference between American Opportunity Tax Credit and the Lifetime Learning Credit
Though both the tax credits are meant to avail tax breaks while you are bearing the cost of higher education, both have different characteristics and benefits. Let us understand which one will be better for you.
American Opportunity Tax Credit
The following are the characteristics of the American Opportunity Tax Credit: –
- Gives maximum tax credit of $2500 on every eligible student
- Valid only for the first four years at an eligible college or vocational school
- Valid only on degrees and other recognized educational credentials
- Partially refundable: If the tax credits bring the amount of your tax liabilities to zero or less than that, then you can claim an amount of up to 40%, i.e., maximum $1000 as a tax refund.
Lifetime Learning Credit
The following are the characteristics of the Lifetime Learning Credit: –
- Gives maximum tax credit of $2000 every year with no bounds on the number of qualified students
- Valid for all year after the completion of post-secondary education and for courses aimed at brushing or acquiring skills that make you employable
- Valid long-term with no limitation on the tax years
These two tax credits are great news for many parents who have to pay a hefty amount on higher education, be it for self, a spouse, or a dependent. The credit can give you a substantial tax break and reduce the amount of your liabilities. So what are you waiting for? Contact your MyTaxFiler expert to know more about such tax credits and benefits to make the most of your 2019 tax returns.