As a new school year approaches, students are considering what classes they need to take and how much the classes will cost. Whether it's community college, a trade school, a four-year university or an advanced degree, higher education is expensive. The good news is tax credits can help offset these costs.
These credits reduce the amount of tax someone owes. If the credit reduces tax to less than zero, the taxpayer could even receive a refund.
Taxpayers who pay for higher education in 2021 can see these tax savings when they file their tax return next year. If taxpayers, their spouses or their dependents take post-high school coursework, they may be eligible for a tax benefit.
There are two credits available to help taxpayers save money on higher education, the American opportunity tax credit and the lifetime learning credit. Taxpayers use Form 8863, Education Credits, to claim the credits.
Here are some important things taxpayers should know about 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. People could get 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.
To be eligible to claim either of these credits, a taxpayer or a dependent must have received a Form 1098-T from an eligible educational institution. There are exceptions for some students.
Taxpayers can use the Interactive Tax Assistant tool on IRS.gov to find out if they're eligible for these credits.