Understanding College Tax Credits: A Quick Guide

As the costs of higher education continue to rise, it’s essential for students and their families to be aware of the financial aids available to them. I’m Emily Lance with the Romine Group, and today, I’ll walk you through two significant college tax credits that can help ease the financial burden: the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC).

The American Opportunity Tax Credit (AOTC)

The AOTC is a valuable benefit for eligible students, offering up to $2,500 per year. Here’s how it works:

Refundable Amount: The first $2,000 of the credit is fully refundable. This means that if the credit brings your tax liability to zero, you can receive the remainder as a refund.
Additional Credit: The next $2,000 is eligible for a 25% credit, contributing an additional $500.
Income Limits: The credit begins to phase out at an Adjusted Gross Income (AGI) of $180,000 for joint filers.

Eligibility Requirements:

Enrollment: You must be enrolled at least half-time during the calendar year.
Education Level: You must not have completed the first four years of post-secondary education. This credit is not available for graduate or MBA students.
Criminal Record: You must not have been convicted of a federal or state felony.

The Lifetime Learning Credit (LLC)

The LLC is another beneficial credit that offers more flexibility and can be used throughout your educational journey. Key features include:

Credit Amount: This credit is 20% of the first $10,000 of qualified education expenses, up to a maximum of $2,000 per year.
Income Limits: Similar to the AOTC, the LLC phases out at an AGI of $180,000 for joint filers.

The LLC is not limited to undergraduate expenses. You can use it for undergraduate, graduate, and professional degree courses, including courses to acquire or improve job skills.

Unlike the AOTC, there is no limit on the number of years you can claim the LLC.

Important Considerations:

When planning to claim these credits, keep in mind:

Payment Sources: If your tuition and related expenses are covered by grants, 529 plans, or employer tuition reimbursement plans, you may not be eligible for these credits.
Documentation: Ensure you provide your Form 1098-T, which outlines the total tuition paid for the year. This form is available through your student’s bursar account if it’s not mailed to you.

Navigating the complexities of tax credits can be challenging, but understanding these options can provide substantial financial relief. Remember, the key is to maintain proper documentation and be aware of the eligibility requirements and income limits.

As always, taxes are a certainty in life, and we at the Romine Group are here to help you navigate them. On a personal note, today marks my son’s last day of preschool, and we’re off to celebrate with some ice cream! Wishing you all a wonderful 3-day weekend.

Feel free to reach out if you have any questions or need assistance with your taxes. We’re here to help!

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Understanding College Tax Credits: A Quick Guide

The American Opportunity Tax Credit (AOTC)

Refundable Amount: The first $2,000 of the credit is fully refundable. This means that if the credit brings your tax liability to zero, you can receive the remainder as a refund.

Additional Credit: The next $2,000 is eligible for a 25% credit, contributing an additional $500.

Income Limits: The credit begins to phase out at an Adjusted Gross Income (AGI) of $180,000 for joint filers.

Eligibility Requirements:

Enrollment: You must be enrolled at least half-time during the calendar year.

Education Level: You must not have completed the first four years of post-secondary education. This credit is not available for graduate or MBA students.

Criminal Record: You must not have been convicted of a federal or state felony.

The Lifetime Learning Credit (LLC)

Credit Amount: This credit is 20% of the first $10,000 of qualified education expenses, up to a maximum of $2,000 per year.

Income Limits: Similar to the AOTC, the LLC phases out at an AGI of $180,000 for joint filers.

The LLC is not limited to undergraduate expenses. You can use it for undergraduate, graduate, and professional degree courses, including courses to acquire or improve job skills.

Unlike the AOTC, there is no limit on the number of years you can claim the LLC.

Important Considerations:

Payment Sources: If your tuition and related expenses are covered by grants, 529 plans, or employer tuition reimbursement plans, you may not be eligible for these credits.

Documentation: Ensure you provide your Form 1098-T, which outlines the total tuition paid for the year. This form is available through your student’s bursar account if it’s not mailed to you.