One thing that’s been slowly happening since Barack Obama became president is a steady overhauling of college financial aid. The most recent is the introduction of the American Opportunity Tax Credit. At the same time, educational tax credits are not new. They’ve been around for nearly a decade. That doesn’t mean Obama hasn’t worked them over. Those earning college degrees online and at a traditional college would do well to understand all these provisions.
Actually, there already was something in place. It’s called the Lifetime Learning Credit, and it came into being back in 2001, when the original Hope credit was introduced. This credit may not offer as much bang for the dollar, but it does cover a wider field of candidates.
The Lifetime Learning Credit is for students who are in their third year of college, taking post-graduate courses or even going part time with as little as one class. Another key difference is a household can have multiple Learning Credits due to having more than one child in college.
As for the brass tacks of this credit, it gives a student (or the parents of) a 20% tax credit up to the first $10,000, i.e., up to $2,000, for educational expenses including tuition, text books, fees and other education-related items. The expense-related costs are much broader than with the Opportunity credit, and can even include travel if it’s for such things as field research.
One important point is there’s what the IRS calls a “phase out” point. The Lifetime credit can only be applied by a single individual who earn less than $60,000 adjusted gross income or a pair filing a joint return who earn under $120,000. Remember this is the IRS, not the Board of Education, and the credit is obtained when filing one’s income taxes, not when you fill out a FASFA form for a Pell Grant.
Other provisos include an individual can’t get both an Opportunity and a Lifetime credit; just one or the other. Yet, as said before, if a parent has more than one dependent in school, the parent can get credits for all of them if they meet the other criteria.
What must absolutely be understood is the Lifetime is a credit, not a tax deduction. You apply the Lifetime after totaling your taxes, not subtract it from the expenses. The IRS doesn’t allow this kind of double dipping, and could reject the entire thing. There are a number of other peccadilloes the IRS has and some of them can be pretty detailed (such as advancing your education only to get a better job at another company). So one should have the entire tax form reviewed by an accountant before applying for it.
On the plus side though, one could end up with $2,000 off the next taxes, even get money back, if done correctly. No matter how you look at it, that’s one quick way to make your education pay for you. These monies may facilitate further classes to get your degree on line for many students. While many are aware of monies available prior to starting school, such as financial aid, learning about money that can be refunded or credited is a smart way to handle your schooling. There is much more information about money for college on the internet.