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A tuition tax credit is a federal tax credit that people can use if they are paying college tuition. It allows students to subtract a set portion of college costs from the income taxes that they pay. Similar to a federal tax deduction, a tax credit will reduce the amount of tax paid, but tax credits differ in that they are subtracted from the actual income tax, while tax deductions are subtracted from the total income that is being taxed. Many parents will benefit from a tuition tax credit if they have claimed their child as a dependent and are currently paying part or all of their child’s tuition. College students who are not claimed as dependents by their parents can claim the tuition tax credit for themselves.
There are two main types of tuition tax credit: American opportunity credits and lifetime learning credits. American opportunity credits will allow those paying for higher education to subtract up to $2,500 US Dollars (USD) from the tax that they pay each year. This school tax credit can be claimed once per year for each dependent enrolled at a recognized undergraduate institution, and it can be claimed for no more than four years. Additionally, the student must be enrolled at least half-time, and the total income must be at or below $180,000 USD for a married couple filing jointly, and below $90,000 USD for a single individual. Other stipulations include proof of educational expenses and a lack of any felonies or drug-related convictions.
Lifetime learning credits are the second form of tuition tax credit available to people paying for the cost of education. These personal tax credits allow a subtraction of up to $2,000 USD per return. The gross income required to be eligible for a lifetime learning credit is $120,000 USD if married and filing jointly, and $60,000 USD if single. Drug convictions are permitted, students do not have to be enrolled for any set number of courses, and the tax credit may be claimed for an unlimited number of years. Another difference from the American opportunity credit is the inability to receive a tax refund; although 40% of the American opportunity credit is refundable, those claiming the lifetime learning credit cannot receive a tax refund if the tuition tax credit exceeds their income tax.
Taxpayers cannot claim multiple lifetime learning credits for multiple children, but they can choose to combine lifetime learning with American opportunity tax credits. For example, a couple might choose to claim an American opportunity credit for one child and a lifetime learning credit for their second child. Both tax credits cannot, however, be combined for the same child, and parents must choose one or the other if they only have one child enrolled in college.
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