Lifetime Learning Credit: How To Claim It?
Lifetime Learning Credit: How To Claim It?
by
December 23, 2022
Do you have college-aged children and are looking for ways to reduce the amount you pay in taxes? If so, consider taking advantage of the Lifetime Learning Credit (LLC), a tax credit from the Internal Revenue Service that can earn you up to $2,000 per tax return.
Unlike other education credits, it’s available to taxpayers who qualify — not just those paying tuition for a student enrolled at an accredited college or university. In this comprehensive guide, we'll explore what the LLC is, how much it covers, who can claim it on their taxes, and what criteria must be met before using this potentially valuable tool.
What is the Lifetime Learning Credit?
The Lifetime Learning Credit is a tax credit that helps offset the cost of eligible postsecondary educational expenses such as tuition, fees, and course materials. This credit covers up to 20% of the first ten thousand dollars spent each year on college or job-related courses, up to a maximum of $2,000 per tax return.
Who Is Eligible for the Lifetime Learning Credit?
To qualify for the Lifetime Learning Credit, there are three key requirements you must fulfill:
- First, qualified education expenses must be paid for higher education either by yourself, your dependent, or a third party. Essentially, you had to have paid for some sort of higher education.
- Second, these expenses must be made on behalf of an eligible student enrolled in an eligible educational institution. Eligible institutions are basically accredited colleges or universities (including trade or vocational schools). To qualify as enrolled, the student in question must be enrolled in at least one academic period during the tax year (this can be a semester, quarter, etc.).
- Lastly, the student must be yourself, your spouse, or a dependent listed on your tax return. This means that you can’t, for example, claim the credit for a spouse not listed on your tax return or for a younger sibling or stepchild who isn’t your dependent.
You may qualify for this beneficial Lifetime Learning Credit if all these criteria are met. However, there are also income limits you have to meet.
What Are the Income Limits for the Lifetime Learning Credit?
You can’t claim the LLC if your 2022 income was more than $90,000 (if you’re filing as a single person) or $180,000 (if filing jointly). However, it’s also important to note that if you earned between $80,000 and $90,000 last year, your Lifetime Learning Credit would gradually be reduced. So, you might receive some tax credits but not the full $2,000.
How to Claim Lifetime Learning Credit
Claiming the Lifetime Learning Credit might seem complicated, but it’s quite simple. And if done correctly can save you significant amounts of money.
To claim it, you must have received Form 1098-T from an eligible educational institution which must be domestic or foreign. Generally, students are notified of their eligibility through the form by January 31st (which means that you should have received yours by now if you were due one).
If you did receive Form 1098-T, you should see an amount in box 1 for the previous year's total education expenses. However, this doesn't necessarily correspond with the amount you can claim. Additional information is needed to determine the claimable amount that covers qualified education expenses such as tuition and other related fees.
If you believe you should have received Form 1098-T, contact your school’s registrar or student services office. Do this as soon as possible to figure out the amount before you file your taxes.
Other Educational Tax Credits
The Lifetime Learning Credit isn’t the only educational tax credit available to help you reduce your annual tax bill. The American Opportunity Tax Credit (AOTC) is another popular credit you can claim.
Note that while you can claim both tax credits on one tax return, you can’t claim both for the same student. For example, let’s say you are returning to school and paying for your child’s college education. You could claim the LLC for their education expenses and claim the AOTC for your education expenses.
What are the differences when it comes to AOTC vs. LLC?
- The AOTC is worth up to $2,500 per eligible student, whereas the LLC is worth up to $2,000 per tax return.
- The AOTC is refundable for up to 40% of the credit owed, whereas the LLC is not refundable.
- The AOTC is only available if a student hasn’t completed four post-secondary education years before 2022. In contrast, the LLC is available to anybody participating in post-secondary courses or studying to “acquire or improve” job skills.
- The AOTC is available to claim for a maximum of four years per student, whereas the LLC has no limit.
- The AOTC is only available to students pursuing a degree or “recognized” educational credential, whereas the LLC is available to anybody studying and paying for those expenses.
- The AOTC is only available to students enrolled at least part-time, whereas the LLC is more lenient as long as you’re taking at least one course.
- The AOTC isn’t available to students with prior felony drug convictions, which isn’t a determining factor for the LLC.
Other factors, such as the income limits for eligibility and the filing requirements, are the same. However, after reviewing this list, you’ll likely note that the Lifetime Learning Credit is slightly more flexible.
This is due to its requirements, which allow students of all ages — not just those in their first four years of higher education — to be eligible. It also allows students who are part-time or taking courses to gain new skills without seeking a degree. As such, there are fewer rigid requirements for the LLC, thus making it easier for taxpayers to take advantage of this tax credit.
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