Lifetime Learning Tax Credit
What is it?
The Lifetime Learning credit is a tax credit available to individuals who file a tax return and owe taxes. This means the amount of the credit is subtracted from the taxes your family owes, rather reducing taxable income like a tax deduction does. You cannot get a refund for the Lifetime Learning credit if your family does not pay taxes. If your family owes less in taxes than the maximum amount of the Lifetime Learning tax credit for which your family is eligible, you can only take the credit for the amount you owe in taxes.
The actual amount of the credit depends on your family's income, the amount of qualified tuition and fees paid, and the amount of certain scholarships and allowances subtracted from tuition. This credit is family-based rather than based on the number of dependents in your family like the Hope credit.
The Taxpayer: An eligible taxpayer must file a tax return and owe taxes to claim the credit. The taxpayer must also claim the eligible student as a dependent unless the credit is for the taxpayer or the taxpayer's spouse. This means the eligible taxpayer may also be the eligible student.
The Student: An eligible student may be enrolled at least one-half time in an eligible program leading to an undergraduate or graduate degree at an eligible school during the calendar year OR may be enrolled at any enrollment level in any course of instruction at an eligible school to acquire/improve the student's job skills during the calendar year. You may claim the credit yourself if you are not claimed as a dependent by another taxpayer. Once again, this means that the eligible student may also be the eligible taxpayer.
To apply for the credit, the taxpayer must report the amount of tuition and fees paid as well as the amount of certain scholarships, grants, and untaxed income used to pay the tuition and fees. The law specifies that schools will send this information in the form of a return to individual taxpayers and to the IRS. For the tax year, this return will include: 1) the name, address, and taxpayer ID number of the school; 2) the name, address, and taxpayer ID of the student for whom tuition was paid; 3) whether the student was enrolled at least half-time; 4) whether the student was enrolled only in a graduate-level program; 5) amounts billed for qualified expenses; 6) adjustments made for a prior year; and 7) scholarships or grants.. Your school will mail this to you by January 31st of each tax year. This "return" from the school will also include the phone number of a person you can call at the school if you have questions. You will use this information and your own records about tuition and fee amounts you paid to fill out the IRS Form 8863 to claim the tax credit. You may wish to talk to a tax advisor for help in calculating the amount of your credit. For further information, see IRS Publication 970 - Tax Benefits for Education.
A family may claim a Lifetime Learning credit, a Hope 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.