Tax Credit for Post Secondary School
The U.S. tax code is replete with deductions and credits that foster various policies and actions. As of the time of publication, there are two tax credits and one tax deduction that promote post-secondary education: the American Opportunity Tax Credit, The Lifetime Learning Tax Credit and the Post Secondary School Deduction. Of these three tax breaks, you are limited to using only one annually.
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Deductions Versus Credits
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A tax deduction is an expense you subtract from your income to arrive at your "taxable" income. A tax credit is a figure you subtract from the taxes you owe. Some, but not all, tax credits may be awarded as refunds if your tax liability is less than the credit. Dollar for dollar, a credit is worth more than a deduction.
Post Secondary Credits
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The American Opportunity Tax Credit is a credit of up to $2,500 a year for up to four years for tuitions and fees at qualified post-secondary schools. To take the full credit, your income must not exceed $80,000 if filing as a single or $160,000 if filing as a couple. The Lifetime Learning Credit is a credit of 20 percent of tuition and book expenses up to $10,000 a year without restriction on the number of years, and can be used for part-time students. To take this full credit your income must not exceed $60,000 if filing as a single or $120,000 if filing as a couple. The credits are available to the student, if not claimed as a dependent on another's tax return, or the parent -- if the student is a dependent -- making tuition and fee payments.
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The Deduction
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The post-secondary deduction is available to tax filers with incomes under $65,000 if single or $130,000 if married. It is limited to$4,000 a year per family for each of four years of post-secondary education for each student. It is available for tuition and related fee expenses.
Credit or Deduction
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Look first at your modified adjusted gross income to find out which, if any, of the credits and deduction you qualify for. If you qualify for both credits and deduction, then apply the deduction first to see how much that would reduce your tax liability. If it is less than $2,000 or $2,500, then take the largest credit applicable to your or your student's situation.
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