If you're considering what classes you need to take and how much they will cost this upcoming school year, whether it's community college, a trade school, a four-year university or an advanced degree, there are tax credits that can help offset the often expensive costs.
If you, your spouse or your dependents take post-high school classes, you may be eligible for a tax benefit. There are two credits to help you save money on higher education: the American Opportunity Tax Credit and the Lifetime Learning Credit.
The American Opportunity Tax Credit
Worth a maximum benefit of up to $2,500 per eligible student.
Only for the first four years at an eligible college or vocational school.
For students pursuing a degree or other recognized education credential.
Partially refundable. People could get up to $1,000 back.
Worth a maximum benefit of up to $2,000 per tax return, per year, no matter how many students qualify.
Available for all years of postsecondary education and for courses to acquire or improve job skills.
Available for an unlimited number of tax years.
If you pay for higher education in 2021, you can see these tax savings when you file your tax return next year. You use Form 8863, Education Credits, to claim the credits. These credits reduce the amount of tax you owe, and if the credit reduces tax to less than zero, you could even receive a refund. To be eligible to claim either of these credits, you must have received a Form 1098-T from an eligible educational institution.
You can’t take more than one tax credit for the same student and the same expenses. So, you can't take the AOTC and LLC for the same student in the same tax year. Also, if you receive tax-free educational assistance, such as a grant, you need to subtract that amount from your qualified education expenses.
There are exceptions for some students. You can use the IRS Interactive Tax Assistant tool to find out if you're eligible for these credits.
Resources: Compare Education Credits Publication 970,Tax Benefits for Education