Tax Credit for Adult Dependent Students

To help pay for college expenses, the American Opportunity Credit grants parents and students a tax credit.

A tax credit is a calculated sum deducted from the total amount a taxpayer owes in federal income taxes. The Internal Revenue Code contains many tax credits created for various purposes, including educational expenses for adult dependent students.

Educational Tax Credits

The American Opportunity Credit and the Lifetime Learning Credit are tax credits available to taxpayers who have paid post-secondary education expenses. Depending on who paid for the educational expenses, the education tax credits may be claimed by either the adult dependent student or the parent claiming the adult dependent student. For each student, you can select only one of the credits. Also, note that the credits are not available when claiming the tuition and fees tax deduction and when your filing status is married filing separately.

American Opportunity Credit

To help make college more affordable, Congress created the American Opportunity Credit (AOC) in the American Recovery and Reinvestment Act of 2009. The AOC renamed and expanded the already-existing Hope credit. While the AOC was initially valid only for 2009 and 2010, Congress later extended it to the tax years 2011 and 2012.

The AOC can be claimed for qualified educational expenses and is available for each of the first four years of post-secondary education--minus any year that the Hope credit was claimed. The Hope credit was limited to only the first two years. Qualified educational expenses include tuition and fees required for enrollment and course-related books, supplies and equipment; however, student activity and athletic fees, housing and insurance costs are excluded. The Hope credit was limited to just tuition and required fees.

The AOC credit applies to 100 percent of the first $2,500 spent on qualified educational expenses and 25 percent of the next $2,000. The Hope credit applied to up to only $1,800 of educational expenses.

AOC Eligiblilty

To be eligible for the AOC, a student must be pursuing an undergraduate degree, be enrolled at least part-time and not have been convicted of a drug-related felony. The credit is limited to taxpayers whose modified adjusted gross income does not exceed $90,000 if filing as single or head of household or $180,000 if filing married and filing jointly.

Lifetime Learning Credit

Since the eligibility requirements are lower, the Lifetime Learning Credit is available to students who do not qualify for the AOC. This credit covers qualified educational expenses for each year of post-secondary education. However, the qualified educational expenses are limited to just the tuition and fees required for enrollment. Although the Lifetime Learning Credit provides a smaller tax credit than the AOC, it can be claimed for an unlimited number of years. This credit allows for a 20 percent tax credit for the first $10,000 of qualified expenses, creating a maximum credit of $2,000 per tax return.

Lifetime Learning Credit Eligiblilty

To be eligible for the Lifetime Learning Credit, the student must be enrolled at least part-time and is not required to be pursuing a degree. The credit is limited to taxpayers whose adjusted gross income does not exceed $60,000 if filing as single or head of household and $120,000 if married and filing jointly.

References

• Internal Revenue Service: Publication 970 (Tax Benefits for Education)
• Internal Revenue Service: American Opportunity Credit
• Internal Revenue Service: Lifetime Learning Credit
• Internal Revenue Service: The American Recovery and Reinvestment Act of 2009: Information Center
• Internal Revenue Service: American Opportunity Credit: Questions and Answers