Can a Non-Parent Get Tax Credit to Pay a Grandson's College Tuition?
Although the Internal Revenue Code provides opportunities for higher education credits, in most cases, those who can claim the tax credits are limited to parents and students. As of the date of publication, eligible taxpayers and students may qualify for the American opportunity credit or the continuing learning credit. Although not a tax credit, income-qualified filers can get an income tax deduction of up to $4,000 to offset the cost tuition and fees.
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Credit or Deduction
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A credit reduces the income tax you owe. A deduction reduces the amount of income on which you have to pay taxes. As of the date of publication, up to 40 percent of the American opportunity credit may qualify as a refundable credit, which means that any portion of the credit in excess of your tax liability results in a refund to you. However, you must first meet the eligibility requirements to claim the credit.
Claiming Education Credits
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Generally, you can claim education credits if you meet three specific requirements: You must pay qualified education expenses associated with institutions of higher learning; you pay the expenses for an eligible student, and the eligible student must be you, your spouse or a dependent you can claim on your tax return. If you, as a grandparent, pay qualified education expenses for your grandchild, the payments are considered paid by the person who claims the student as a dependent.
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Qualified Expenses
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To determine if the qualified expense deduction applies, the education institution must qualify under the Internal Revenue Service as an eligible entity. To qualify, the school must be eligible for or already participating in a student aid program certified by the U.S. Department of Education.
If the school of higher learning involved qualifies, you can apply the deduction to tuition and, in certain cases, other fees. If you pay student activity fees and have to buy course-related books, equipment and supplies from the institution as a condition of enrollment or attendance, you can deduct those expenses, as well.
Considerations
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Changes to the tax code occur on a regular basis. For example, up until 2009, eligible students and their parents had access to the Hope Education tax credit, which has since been discontinued. Therefore, if your grandchild is a dependent and you plan to take advantage of one of these credits or a tuition and expense deduction, you should bring yourself up to speed on current tax law or consult with a qualified tax professional before filing your federal income tax return. Parents or students may claim education credits, but not both. Parents can only claim one credit per student, per year. Figure your taxes first with the credit and then with the deduction; choose the method that gives you the lowest tax liability. State income tax laws may differ from federal statutes; as such, you should check with your state taxing authority about education credits in advance of filing your state return.
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