Understanding The Lifetime Learning Tax Credit (For Students and Families)
What Is The Lifetime Learning Tax Credit ?
The Lifetime Learning credit is a tax credit available to individuals who file a tax return and owe taxes. This means the amount of the credit is subtracted directly from a family’s actual tax liability, rather than reducing taxable income like a tax deduction does. The Lifetime Learning credit is not refundable.
A family may claim a tax credit of up to $1,000 per tax year (until January 1, 2003) and $2,000 per tax year (after that date) for the taxpayer, taxpayer’s spouse, or any eligible dependents for an unlimited number of tax years. A family may claim up to 20% of $5,000 of eligible expenses for expenses paid after June 30, 1998, and prior to January 1, 2003, and up to 20% of $10,000 of eligible expenses (after that date).
The actual amount of the credit depends on the family’s income, the amount of qualified tuition and fees paid, the amount of certain scholarships and allowances subtracted from tuition. This credit is family-based (e.g., $1,000 per family) rather than dependent-based like the Hope credit.
The Taxpayer: An eligible taxpayer must file a tax return and owe taxes to claim the credit. The taxpayer must also claim the eligible student as a dependent unless the credit is for the taxpayer or the taxpayer’s spouse. The taxpayer is eligible for the maximum benefit with an Adjusted Gross Income (AGI) of up to $40,000 for single taxpayer (or $80,000 for married taxpayers). The credit amount is phased out between $40,000 and $50,000 for single taxpayers (or $80,000 and $100,000 for married taxpayers). The Student: An eligible student may be enrolled at least half time in an eligible program leading to an undergraduate or graduate degree at an eligible school during the calendar year or may be enrolled at any enrollment level in any course of instruction at an eligible school to acquire/improve the student’s job skills during the calendar year. The student may claim the credit if the student is not claimed as a dependent by another taxpayer.
How Do You Get The Credit?
To qualify for the credit, the taxpayer must report the amount of tuition and fees paid as well as the amount of tax-free grants, scholarships, employer-education assistance, and other untaxed income used to pay the tuition and fees.
When Is The Credit Available?
The taxpayer may claim the Lifetime Learning credit or qualified expense paid July 1, 1998, and after.
Can A Family Claim Multiple Benefits?
A family may claim a Lifetime Learning credit, a Hope credit, an exclusion from gross income for certain distributions from qualified State tuition programs or education IRAs, as long as the same student is not used as the basis for each credit or exclusion and the family does not exceed the Lifetime Learning maximum per family.
This document is for informational purposes only. This information is not intended to be tax advice and should not be relied upon in the preparation of a tax return. Taxpayers should consult with a competent tax advisor or the IRS to determine how their own circumstances are affected.
Prepared by the National Association of Student Financial Aid Administrators