If you are attending college or you are paying a dependents college expenses, then you may be able to take a tax credit. The Hope credit and the Lifetime learning credit are two tax credits to help people pay for college.
Here is how they work:
You can claim the Hope credit or the Lifetime learning credit but not both.
The credits are nonrefundable so that means they can reduce your tax bill to $0 but not refund you money over what you owe in taxes.
For either credit you can only apply it towards qualified education expenses at a eligible university. Generally this means tuition at accredited schools.
Both credits have income limits: You can claim the maximum credit if your modified adjusted gross income is less than $47,000 filing single or $94,000 if filing jointly. If you make between $47,000 and $57,000 for single or $94,000 to $114,000 jointly then you can get a partial credit. If you make over $57,000 single or over $114,000 joint then you are not eligible.
The Hope Credit
The credit applies per student. It is only available for the first 2 years of college per student. The student must be pursuing an undergraduate degree. How much :
100% of the first $1,100 of qualified education expenses you paid for the eligible student, and
50% of the next $1,100 of qualified education expenses you paid for that student.
Lifetime Learning Credit
The credit applies per return.
The amount of the lifetime learning credit is 20% of the first $10,000 of qualified education expenses you paid for all eligible students. This makes the maximum $2,000.
Lets say you have a $15,000 annual tuition bill that you are paying out of pocket. The Hope credit would max out at $1,650 and the Lifetime credit would give you 20% of the 15,000 up to $2000. So your maximum would be the Lifetime credit for $2,000 annually. Your credits would be $8,000 total for 4 years and this would pay 13% of your $60,000 total 4 year bill.
On the other hand consider if you are going to a public school with a $7,500 annual tuition rate. The Hope credit would be $1,650 and the Lifetime would be 20% of $7500 for $1500. So the Hope credit would be more. But you can only use the Hope credit for the first two years. You could claim the Hope credit for the first two years and then the Lifetime credit for the second two. That would give you 2 x $1,650 and 2 x $1,00 for a total of $6,300. This $6,300 would equate to 21% of the total $30,000 bill.
For all the details on the Hope and Lifetime credits see:
- Details from the IRS on the Hope Credit
- Details on the Lifetime Learning credit.
- IRS publication 970 - Tax Benefits for Education