Tax Credits for Private Independent School Tuition

In order to encourage taxpayers to further their education, or that of their spouses or dependents, Congress and the Internal Revenue Service provide two tax credits that a person paying tuition can claim. In order to claim the credit, the institution the student attends must be an accredited college or university, public or private. You cannot claim both credits in one year, but you can claim either credit if you are a student or are paying the tuition for your spouse or dependent.

Tax Credit

A tax credit is a dollar-for-dollar reduction of the income you must pay taxes on. When you claim a tax deduction, you receive a proportional reduction of the income you must pay taxes on relative to the tax bracket you are in. Some tax credits will also produce a refund, unlike tax deductions. For example, if you are in the 25 percent tax bracket and owe $3,000 in taxes and claim a tax credit of $2,000, then your tax liability, or what you owe, is reduced to $1,000. However, if you claim a tax deduction of $2,000, then it is only reduced by $500, and you still have a tax liability of $2,500.

American Opportunity Credit

The American Opportunity Credit is available for students pursuing a post-secondary education only. You can also use this credit to offset some of the expenses of a private, independent college. Each student, or person who claims the student as a dependent, is eligible to claim a credit of $2,500 for the first four years of undergraduate study. In order to claim the credit, you must pay the tuition and qualified feeds of the student, plus the student can have no felony drug convictions on his record. Up to 40 percent of this credit is refundable, meaning if the amount of the credit exceeds your tax liability by less than 40 percent, you will receive a refund. You cannot claim the credit if your filing status is married filing jointly and your modified adjusted gross income exceeds $180,000, or if your filing status is single, head of household or qualifying widower and exceeds $90,000.

Lifetime Learning Credit

The lifetime learning credit is somewhat less stringent than the American Opportunity credit and allows the student, or person claiming the student as a dependent, to claim up to $2,000 to help offset the cost of tuition and fees. The credit is available for those pursuing a post-secondary education or furthering their educations for their jobs or careers. The student need not be pursuing an undergraduate degree as with the American Opportunity credit. You can claim this credit for as many years as are applicable, and the student may have a felony drug conviction, but the credit is not available to those whose modified adjusted gross income exceeds $160,000, if married filing jointly, or $60,000 if filing as single, head of household or qualifying widower.

Qualified Expenses

You can only claim the above credits for qualified expenses. Qualified education expenses include tuition and fees and required textbooks, equipment or supplies for applicable courses. You may not claim the credit to help offset the expenses for room and board or transportation.

References

• IRS.gov: Publication 970 (2010), Tax Benefits for Education
• "Income Tax Planning for Financial Planners"; Thomas Langdon, et al.; 2010