Understanding the American Opportunity Credit and the Lifetime Learning Credit
(temporary replacement for the Hope Tax Credit)
AMERICAN OPPORTUNITY CREDIT
What Is The American Opportunity Credit?
The American Opportunity Credit is a temporary replacement for the Hope tax credit. A family or student must file a federal tax return to receive this tax credit; a taxpayer with no income tax liability can receive a refund for a portion of the credit. See the IRS website for the tax credit benefits for the current year. A family or student may claim this tax credit for four years of postsecondary education for each eligible student. Please see IRS website for qualified expenses. The total credit is based on the number of eligible students in the family, rather than a dollar amount for the family, like the Lifetime Learning tax credit.
- The Taxpayer: The taxpayer must claim the eligible student as a dependent, unless the credit is for the taxpayer or the taxpayer's spouse. See your tax professional regarding the gradual phase out of the American Opportunity Credit due to income.
- The Student: An eligible student must be enrolled at least half time in an eligible program leading to a degree or certificate at an eligible school during the tax year, and must not have completed the four years of such undergraduate study. In addition, the student cannot have been convicted of a federal or state drug felony before the end of the tax year. The student may claim the credit if they are not claimed as a dependent by another taxpayer.
LIFETIME LEARNING TAX CREDIT
What Is The Lifetime Learning Tax Credit?
The Lifetime Learning credit is a federal tax credit available to individuals who file a federal tax return and have a tax liability. A family may claim up to 20% of $10,000 in eligible expenses paid for all eligible students, including the taxpayer, taxpayer's spouse, and any eligible dependents. This tax credit of up to $2,000 per tax year is available for an unlimited number of tax years. The Lifetime Learning tax credit is family based (e.g., $2,000 per tax return).
- The Taxpayer: The taxpayer must claim the eligible student as a dependent unless the credit is for the taxpayer or the taxpayer's spouse. See your tax professional regarding the gradual phase out of the Lifetime Learning tax credit due to income.
- The Student: An eligible student must be enrolled in an eligible school for one or more courses during the tax year. This tax credit is available for all years of postsecondary education, and for courses to acquire or improve job skills. The student may claim the credit if the student is not claimed as a dependent by another taxpayer.
Can a Family Claim Multiple Benefits?
A family may claim a Lifetime Learning Credit, an American Opportunity Credit, and 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.
When Is Tax Credit Available?
Generally, the tax credit is allowed for qualified tuition and expenses paid when a student is enrolled at an institution of higher education during the tax year or for an academic period that begins following the tax year (e.g., paying in December 2010 for an academic period beginning in the first three months of 2011).
How Do You Get The Tax Credit?
To apply for the tax credit, the taxpayer must report on his tax return the amount of qualified tuition, fees and expenses paid as well as the amount of certain scholarships, grants and untaxed income used to pay the tuition and fees.
Jacksonville State University provides only tuition and fees billed and certain scholarships and grants in the form of a 1098-T statement to individual taxpayers and to the IRS by January 31 each year. Taxpayers use this information and their own records about tuition and fees paid and other qualified expenses paid such as books, supplies and equipment when they complete IRS form 8863 to claim the tax credit.
For additional information:
- Publication 970 (PDF), Tax Benefits for Higher Education - You will need to obtain form 8863 in order to claim the credit.
- Form 8863 and Instructions (PDF), Education Credits - (American Opportunity, Hope, and Lifetime Learning Credits) You may phone the IRS at 1-800-829-1040
Students may access their account information on the JSU website. Select the "View Account/Make Payment" option.