Tax Tip of the Week - Education Credits

With school back in session, parents and students should look into tax credits that can help with the cost of higher education. They do this by reducing the amount of tax someone owes on their tax return. If the credit reduces tax to less than zero, the taxpayer may get a refund. Taxpayers who pay for higher education in 2019 can see these tax savings when they file their tax returns next year. There are two credits available to help taxpayers offset the costs of higher education.

The American opportunity tax credit and the lifetime learning credit may reduce the amount of income tax owed. Taxpayers use Form 8863, Education Credits, to claim the credits. To be eligible to claim the American opportunity tax credit, or the lifetime learning credit, a taxpayer or a dependent must have received a Form 1098-T from an eligible educational institution.

The American opportunity tax credit is: Worth a maximum benefit up to $2,500 per eligible student. Partially refundable. This means if the credit brings the amount of tax owed to zero, 40 percent of any remaining amount of the credit, up to $1,000, is refundable. The lifetime learning credit is: Worth a maximum benefit up to $2,000 per tax return!!