Tax Credits and the Cost of Higher Education

Tax credits can help offset
the cost of higher education.

Whether it’s online, in-person, part-time, or full-time, higher education can be expensive. The good news is there are tax credits that can help offset these costs. These credits reduce the amount of tax someone owes. If the credit reduces the tax to less than zero, the taxpayer could even receive a refund.

If you pay for higher education in 2020, you could see these tax savings when you file your tax return next year. If you, your spouse, or your dependents take post-high school coursework, you may be eligible for a tax benefit.

Tax Credits Available

There are two credits available to help you save money on education, the American Opportunity Tax Credit and the Lifetime Learning Credit. Form 8863, Education Credits, is used to claim the credits.

To be eligible to claim either of these credits, you or a dependent must have received a Form 1098-T from an eligible educational institution. There are exceptions for some students.

Key Things About Each of These Credits

The American Opportunity Tax Credit is:

Worth a maximum benefit of up to $2,500 per eligible student.
Only for the first four years at an eligible college or vocational school.
For students pursuing a degree or other recognized education credential.
Partially refundable–up to $1,000 back.

The Lifetime Learning Credit is:

Worth a maximum benefit of up to $2,000 per tax return, per year, no matter how many students qualify.
Available for all years of postsecondary education and for courses to acquire or improve job skills.
Available for an unlimited number of tax years.

A Final Note

You can use the Interactive Tax Assistant tool on IRS.gov to figure out if you are eligible for these credits.

You should also contact your tax professional to answer any questions regarding your eligibility to receive credits available to save money on the cost of higher education.

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