The Lifetime Learning Credit or LLC is a federal income tax break offered to those who had qualifying tuition and other education-related expenses at an approved institution of higher learning.
The Internal Revenue Service official site states that this federal income tax credit is applicable for those who pay for these expenses whether that is the student themselves, a parent, or other qualifying third party.
This IRS tax credit is not the same as the American Opportunity Tax Credit (AOTC) and these benefits cannot be claimed together in the same tax filing year. There are important differences between AOTC and LLC, the biggest one being that AOTC is partially refundable, but LLC is not refundable (see below).
Other differences include higher income caps for AOTC as well as a higher tax credit–$500 more in tax year 2020. AOTC does have some restrictions that aren’t as generous as LLC–the American Opportunity Tax Credit is limited to four years but you may claim LLC tax benefits (as long as you qualify) for an unlimited number of years.
Both tax credit programs have the same guidelines about who can claim; you cannot claim either benefit if someone else can claim you as a dependent on that year’s tax return. AOTC requires students to be enrolled for a minimum of half-time attendance, but LLC only requires registration for a minimum of “one academic period” (see below).
Lifetime Learning Credit Guidelines
The LLC tax credit can be used to pay for undergrad, graduate, and professional degree coursework, and may be claimed for up to $2,000 per tax year. In order to qualify for this tax credit, all three of the following must apply:
- You, your college-age dependent, or another qualifying third party pay “qualified education expenses for higher education”
- This money is paid to enroll eligible student at an eligible educational institution
- The student is either yourself, your spouse or a dependent listed on that year’s tax return
Who is not permitted to apply for the Lifetime Learning Credit? Much depends on how you are filing that year’s taxes. For example, you can’t claim LLC if someone else has listed you as a dependent on their taxes. There are other scenarios including but not necessarily limited to the following:
- Your filing status is married filing separately
- You already claimed or deducted another higher education benefit using the same student or same expenses
- You or your spouse were a non-resident alien for any part of the year and did not choose to be treated as a resident alien for tax purposes
Which Students Qualify For LLC?
To be eligible for the LLC, qualifying students must be enrolled or currently attending classes at an approved institution. The student must be in a degree-seeking or credential-seeking program.
Courses used to improve job skills are also eligible. There is also a requirement that the student be enrolled “for at least one academic period” within the tax year you claim the LLC in.
There are flexible guidelines for what is considered an academic unit; students may attend under programs organized by semester, quarter, trimester, or “any other period of study such as a summer school session”.
Academic periods are determined by the school. For schools that use clock or credit hours and do not have academic terms, the payment period may be treated as an academic period.
How Much Tax Credit Is Offered Through LLC?
The Lifetime Learning Credit is offered for up to 20% of the first $10,000 of qualified education expenses. The cap on this benefit (per tax return) equals $2,000.
LLC = Non-Refundable Tax Credits
You may use the LLC to pay any taxes that might be owed, but this tax credit is non-refundable, which means you won’t get any portion of this tax credit in an applicable tax refund.
Lifetime Learning Credit Income Limits
Certain income caps may apply depending on the tax guidelines for the current tax year and other variables.
The numbers you see referenced in this section were applicable for tax year 2020 but may or may not apply for subsequent tax years. Consult a tax professional to learn what the current guidelines for filing are and whether or not you meet current LLC income guidelines.
- In tax year 2020, the amount of the LLC is gradually phased out in cases where the taxpayer’s modified adjusted gross income (MAGI) falls between $59,000 and $69,000 for single filers and $118,000 and $138,000 for joint tax return filers.
- Those with MAGI higher than $69,000 for single filers or $138,000 for joint filers are not eligible to claim the Lifetime Learning Tax Credit.
How To Claim LLC
IRS.gov says in order for taxpayers to claim the Lifetime Learning Credit on their federal income tax forms, they must receive a Form 1098-T Tuition Statement from their school.
The IRS official site advises that in general, students should receive this documentation from the school no later than Jan. 31st. Form 1098-T is crucial for determining the amount of tax credit you may claim. You may need to contact your school if your form has not arrived by the end of January.
Additionally, claiming LLC requires the completion of IRS Form 8863, Education Credits, and this form must be submitted with your usual tax forms electronically or by mail.
Joe Wallace is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News
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