Advice on Education Tax Credits

Education tax credits can reduce taxes owed dollar for dollar. Both the American Opportunity Credit and the Lifetime Learning Credit may be claimed for education expenses including tuition, fees, textbooks, supplies, and equipment required for classes. Expenses such as student insurance, transportation to the educational institution, and personal expenses cannot be claimed for the purposes of either credit.

American Opportunity Credit

The American Opportunity Credit (AOC) allows taxpayers to get a dollar-for-dollar credit toward their taxes for up to $2,500 for each eligible student they claim. Eligibility is based on type of education (must be going for an undergraduate degree or certain certifications), and amount of time enrolled (must be at least a half-time student for at least one academic period during the year). In addition, the taxpayer claiming the credit may not have a felony drug conviction on his or her record.

In the case of the American Opportunity Credit, even if one does not owe any taxes, he/she can receive up to $1,000 of the credit as a tax refund - 40% of the credit is refundable.

Lifetime Learning Credit

The Lifetime Learning Credit (LLC) can garner up to $2,000 per year for each eligible student. This credit is not limited to those working toward undergraduate degrees or those taking a certain number of credits per year; this means that graduate students taking just a few classes each year may still receive the credit. Unfortunately, unlike the AOC, those claiming the credit cannot receive a refund of any percentage of the LLC if they did not pay taxes. This credit may, though, be claimed by taxpayers who have a felony drug conviction.

"You may not claim either credit based on expenses you paid with grant money, scholarships, or fellowships, or if you are claimed as a dependent on someone else's tax returns." said ExpressTaxRefund.com spokesperson Michele Tyson. "Both credits are also subject to income restrictions."