Just when you thought the IRS was all about audits, penalties and taking your money, along comes the education tax credit to ruin the bad rep. This tax credit gives you a break for taking college courses. There are two types of education tax credits, one for getting your degree and one for taking job-related courses. They are different in their limits, their tax credit amounts, and their qualifications. A quick read of the differences between the two education tax credit programs will give you all you need to know about claiming the right credit for you. But first let’s look at the similarities in the qualifications, and rule out whether you’re eligible to begin with.
You Can Claim the Education Tax Credit if…
You can claim either one of the education tax credits if you file your own tax return rather than tagging along on someone else’s as a dependent. What this means is, if you are claimed as a dependent on someone else’s tax return then that person would claim the education tax credit, not you. What does this mean exactly? Well usually the people who are claimed as a dependent on someone else’s tax return are children, or teenagers or even people in their early 20s. Parents claim their children as dependents and get tax breaks. Parents will sometimes continue to claim their grown children as dependents as long as it continues to be financially worth it. This usually occurs when the parents are still supporting the grown children, say when they are in college or living at home with no job.
IRS Rules for Claiming Dependents
A dependent is your child who is under 19. If this person is a full time student then you can still claim him or her up to age 24. After that the IRS considers them thrown from the nest, even if they are still in school full time. So, for the education tax credit you wish to claim, make sure your parents are not still claiming you if you’re 24 or younger.
Even if you’re 20 and going to school full time, your parents might not be able to claim you as a dependent if you have a job and pay for more than half of your living expenses. Also, if you don’t live at home for more than half the year then your parents can’t claim you as a dependent.
The Two Types of Education Credits
Well if you’re still eligible after reading through the rules for claiming dependents then now you’re ready to choose your education tax credit.
- The American Opportunity Tax Credit. This is for getting a four-year college degree. You must be enrolled in a degree program at an accredited college. If you have a drug felony in your background you can forget about the American Opportunity Education Credit. Also, this credit is available for only four years, then it expires for you.
- The Lifetime Learning Tax Credit. This is for taking college courses that may or may not be part of a degree program. Usually this is meant to be applied to courses you take at the post-secondary level, that will help you with your career, or getting a job. Unlike the American Opportunity tax credit, this one has no limit: you can claim it every year if your courses qualify. Also, there is no felony drug conviction barrier with this education tax credit.
To claim either one of the education tax credits on your federal income tax return, use IRS Form 8863, available on the IRS website here.