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| Make the Most of Your Education Dollars and Lower Your Tax Bill! | ||
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American Opportunity and Lifetime Learning Tax Credits Information
Attending a North Carolina community college is more affordable than ever. Tuition at North Carolina's community colleges is among the lowest in the country. Also, federal Pell Grants provide financial assistance to many students attending one of our 58 community colleges. In addition to federal assistance available, the North Carolina General Assembly provides a generous financial aid fund for community college students. Need-based grants are available to full-time and part-time students. Students with qualifying income levels can also take advantage of federal tax incentives to make attending a North Carolina community college even more financially attainable. The American Opportunity tax credit replaces the Hope Scholarship tax credit until Dec. 31, 2012, as part of the American Recovery and Reinvestment Act of 2009 and the The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010. The American Opportunity and Lifetime Learning Tax Credits are available to community college students. In most cases the American Opportunity tax credit (formerly known as the Hope Scholarship) will yield a greater financial benefit than the Lifetime Learning tax credit. In any one tax year, you may claim either the Hope Scholarship tax credit or the Lifetime Learning Credit for a student's expenses. If you pay qualified expenses for more than one dependent student, you may choose which tax credit to take for each student. For a brief review of tax credits and deductions visit the IRS Tax Benefits for Education Information Center. | ||
| How much can a taxpayer claim? | ||
| The American Opportunity tax credit replaces the Hope Scholarship tax credit until Dec. 31, 2012, as part of the stimulus bill. It is a refundable tax credit for undergraduate college education out-of-pocket expenses. This credit provides up to $2,500 in tax credits on the first $4,000 of qualifying educational expenses. Forty percent of the credit (up to $1,000 maximum) is refundable.
Forty percent of the American Opportunity tax credit is refundable. This means that even people who owe no tax can get an annual payment of the credit of up to $1,000 for each eligible student. Existing education-related credits and deductions do not provide a benefit to people who owe no tax. The refundable portion of the credit is not available to any student whose investment income is taxed at the parent’s rate, commonly referred to as the kiddie tax. See Publication 929, Tax Rules for Children and Dependents, for details. The American Opportunity tax credit is not subject to the Alternative Minimum Tax (AMT) starting in 2009. For the Lifetime Learning Credit, the credit amount is equal to 20 percent of the taxpayer's first $10,000 of out-of-pocket qualified tuition and related expenses. The maximum for a taxable year is $2,000. The Lifetime Learning Credit is calculated on a per-family rather than a per-student basis. The amounts a taxpayer may claim are gradually reduced based on their income. The American Opportunity or Lifetime Learning credit cannot be claimed against the following sources:
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| What criteria must a student meet to be eligible? | ||
| Credit may be claimed for the qualified
tuition and related expenses of each student in the taxpayer's family
(i.e., the taxpayer, the taxpayer's spouse, or an eligible dependent).
The American Opportunity credit may be claimed for the student who meets the following requirements:
Who is eligible for the Lifetime Learning Credit?
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| Who may claim the tax credit? | ||
Individuals may claim the credit for their
own qualified tuition and related expenses and the qualified tuition
and related expenses for spouses and other eligible dependents
(including children) for whom the dependency exemption is claimed. Generally,
parents may claim the dependency exemption for their unmarried child
if
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| What are "qualified tuition and related expenses" for a community college? | ||
| Qualified tuition and related expenses are
the tuition and fees a student is required to pay in order to attend the
community college. The eligible courses to receive the credit must be
courses that will lead the student toward a degree or certificate or other
recognized educational credential. It does not include courses involving
sports, games, or hobbies unless it is part of the degree program. Books and courses materials are eligible expenses. Student
activity fees, supplies, and equipment
are eligible expenses only if they must be paid to the college as a condition
of enrollment or attendance. Insurance, medical expenses (including student
health fees), room and board, transportation, personal, living or family
expenses, and noncredit course fees are not
eligible expenses. | ||
| Does any type of payment for education expenses qualify? | ||
| The student may take into account only out-of-pocket
expenses in calculating the credit. Qualified tuition and related expenses
paid with the student's earnings, a loan, a gift, an inheritance, or personal
savings are taken into account in calculating the credit amount. However,
qualified tuition and related expenses paid with a Pell Grant or other
tax-free scholarship, a tax-free distribution from an Education IRA, or
tax-free employer-provided educational assistance are not
taken into account in calculating the credit amount. | ||
| Is there a maximum income limit to be eligible to claim the tax credit? | ||
| The American Opportunity tax credit allows taxpayers with a modified adjusted gross
income (MAGI) of $80,000 or less for single filers and $160,000 or less for married couples filing a joint return may be eligible for the full tax credit. Education credit is
gradually phased out for joint filers between $160,000 and $180,000 of
income, and for single filers between $80,000 and $90,000. See the IRS form 8863 for the revised AGI limits. The IRS has also complied Frequently Asked Questions about the American Opportunity tax credit.
You cannot claim any higher education credits if your modified adjusted gross income is $90,000 or more for a single return ($180,000 for a joint return). | ||
| How do I claim the tax credit? | ||
| To apply for the credit, the taxpayer must
figure the amount of education credits by completing IRS
form 8863. Use Part I for the Hope Scholarship credit and Part II
for the Lifetime Learning Credit. In both parts, enter the student's
name and taxpayer identification number (usually a social security number)
and the amount of qualified expenses paid in 2011. Then complete Part
III to compute the amount to enter on line 44 of Form 1040 or line 29
of 1040A. Attach the completed IRS
form 8863 to your return.
The community college will send you Form 1098-T, a statement of payment of qualified tuition and related expenses and other information, by January 31, 2012. Information on Form 8863 will help you determine whether you qualify for an education tax credit for 2011. If you do qualify, the following information should be included on the 2011 form:
Your community college may ask for a completed Form W-9S, Request for Student's or Borrower's Social Security Number and Certification, or similar statement, to obtain the information needed to complete #2 above. Further information and examples are available in the IRS publication 970 and on the IRS web site under a review of tax benefits for education. This information is not a substitute for professional
tax advice. | ||
| A Summary Table Comparing the Education Credits | ||
| American Opportunity Credit | Lifetime Learning Credit | |
| Up to $2,500 credit per eligible student | Up to $2,000 credit per return | |
| Available only until the first 4 years of post secondary education are completed |
Available for all years of post secondary education and for courses to improve or acquire job skills | |
| Available for the first 4 tax years per eligible student | Available for an unlimited number of years | |
| Student must be pursuing an undergraduate degree or other recognized education credential | Student does not need to be pursuing a degree or other recognized education credential | |
| Student must be enrolled at least half time for at least one academic period beginning during the year | Available for one or more courses | |
| No felony drug conviction on student's record | Felony drug conviction rule does not apply | |
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