College Tuition and Tax Credit

Hope/American Opportunity and Lifetime Learning are the two tuition tax credit programs offered by the federal government to help students pay for their higher education costs. You may not claim both for the same student in the same year. Tax credits allow you to subtract the amount of the credit from your total federal income tax bill. Before your taxes are calculated, the income tax deductions are subtracted from your income which means that tax credits usually allow for greater total savings than tax deductions.

The Hope/American Opportunity Tax Credit:

General Facts:

• Must be enrolled at least half-time in a program leading to an undergraduate degree or other legitimate education credential.
• The maximum yearly credit per eligible student is $2,500.
• Partially refundable, which means up to $1,000 could be paid back to lower-income taxpayers when the credit exceeds their total tax bill.
• There is no limit on how many family members can receive the credit.
• Amount of credit begins to phase out if your AGI single return is between $80,000 and $90,000 or more and for a joint return is between $160,000 and $180,000 or more.
• The student must be listed as a dependent on the tax form for parents or guardians to claim a Hope credit for their child's college expenses.
• A student can claim credit if they are not listed as a dependent on another person's tax form.

The Lifetime Learning Tax Credit:

General Facts:

• The Lifetime Learning credit can only be used for tuition and fees. The credit can be claimed for 20 percent of the amount you pay.
• A taxpayer may claim a tax credit for 20% of up to $10,000 in a combination of tuition and fees. This equates to a $2,000 tax credit in 2008 and 2009.
• Amount of the credit begins to phase out if your AGI single return is between $50,000 and $60,000 and for a joint return between $100,000 and $120,000.