There is a special tax credit designed for college or vocational school students called the Lifetime Learning Credit which can be worth up to $2,000 a year per tax return. This tax credit is
• non-refundable. In other words, you can claim the $2,000 but it can’t exceed the amount of tax you owe on that return. You won’t get money back from this tax credit.
• eligible for all years of college, vocational schools, as well as any job skills course or job skills improvement courses that you might take.
• for both tuition and fees “required for enrollment or attendance” in the course. You can include your book fees, any supplies, or any equipment as long as they are required for the course.
• available for all of a family’s higher education out-of-pocket expenses up to the $2,000 limit allowed.
The disadvantage to this tax credit is that you can only claim up to $2,000 per tax return per year, regardless of how many people in your household are in higher education. You also can’t be a convicted felon. In addition, the amount of this tax credit is dependent upon your income—if you make too much or too little, you might not be available for any credit. As you can see, there are some very strict restrictions on this credit, so tread carefully when claiming it.
This tax credit originated in a law passed in 1997 called the Taxpayer Relief Act. Within this Act are various credits to cover some college or higher education expenses, and they all have very distinct requirements in order to claim those credits. The Lifetime Learning Credit is part of this bill, and is based upon your modified adjusted gross income. Each tax year that income requirement changes.
The Lifetime Learning Credit is a different deduction than the tuition and fees tax deduction (Education Credits) although both are based upon income levels. The tuition and fees deduction is intended for any student (or parent claiming them as a dependent) attending higher education of some sort, but it does not include a deduction for books or other school-related expenses. However, the tax credit allowed is higher, and you are allowed to deduct for each qualifying student in your family.
For tax year 2012, IRS tax processing delays were reported by Forbes. These delays were caused in part by the tax credit filing forms not being filled out properly. Some of this was caused by tax filing software glitches or some tax preparation companies, affecting well over 600,000 tax payers. Hopefully, this filing issue will be solved for the 2013 tax year.
The various tax credits for available for educational expenses are worth examining, but follow directions exactly when claiming them. Expenses for education are high, and so it is worth it for you to search out every little tax credit available to you.