Life Learning Tax Credit Explained
Updated: July 2023
It’s no surprise to American students that the cost of attending universities or colleges is high. While it can seem overwhelming to face these increasing prices, the IRS offers tax credits like the life learning tax credit that can help reduce their tax bill for eligible college and university-related expenses.
TABLE OF CONTENTS
- The life learning tax credit is a tax credit that can help reduce the tax bill for eligible education expenses for students enrolled in university, college, vocational school, or another type of postsecondary institution.
- The value of the lifetime learning tax credit is up to 20% of a maximum of $10,000 of education-related expenses, resulting in a maximum credit of $2,000 per tax return.
- Some of the qualified education expenses that the lifetime learning credit can be applied toward include tuition, school fees, enrollment fees, attendance fees, and school activity fees. Items such as insurance, housing, medical expenses, student health fees, transportation, and other personal expenses do not qualify for the LLC.
- Eligible taxpayers who earn a modified adjusted gross income of less than $80,000 per year (or $160,000 for joint filers) may qualify for the full lifetime learning credit. Those who earn a MAGI between $80,000 and $90,000 (or $160,000 to $180,000 for joint filers) may qualify for a partial life learning tax credit. People who earn above $90,000 (or $180,000 for joint filers) exceed the income threshold and will not qualify for the life learning credit.
What Is The Life Learning Tax Credit?
The Life Learning Tax Credit, sometimes referred to as the Lifetime Learning Credit, is a tax credit that eligible students can claim to help pay for their undergraduate, graduate, and professional degree courses.
Unlike tax deductions that subtract withholdings from individuals’ incomes before taxes are calculated, tax credits reduce how much tax they owe by a dollar-for-dollar amount.
How Much Is The Life Learning Tax Credit Worth?
The maximum credit amount that taxpayers can claim for up to $10,000 in eligible post-secondary school-related costs is 20%, creating a maximum credit of $2,000.
Life Learning Tax Credit Qualifications
Students must meet a set of requirements in order to be eligible for the LLC, such as:
- The student is taking courses or enrolled at an eligible educational institution.
- The student is taking higher education courses as they work toward a degree, a recognized education credential or certificate, or improve their job skills.
- The student is enrolled for at least one full academic period beginning at the start of the tax year.
The definition of a qualified educational institution is reasonably vague, including:
- Vocational school
- Another post-secondary institution
LLC Income Limits
As well as the qualification requirements related to the education costs, there are also income limits for people to be eligible to claim this education tax credit.
Full Tax Credit
Individual taxpayers who earn a modified adjusted gross income (MAGI) of less than $90,000 per year or people who file a joint tax return and earn less than $160,000 per year are eligible to receive the full tax credit.
Partial Tax Credit
Individual taxpayers who earn a MAGI between $80,000 and $90,000, or joint filers who earn between $160,000 and $180,000 per year are eligible to receive a partial tax credit, also known as a gradually reduced or phased-out credit.
No Tax Credit
Taxpayers who earn a MAGI of $90,000 or more, or $180,000 or more if they file their tax returns jointly, are not able to claim the life learning tax credit because their income level exceeds the minimum threshold.
What Are Qualified Education Expenses?
Only certain education expenses meet the requirements of the life learning tax credit, so before assuming that any and all of the costs related to school are included, it is necessary to learn how the IRS defines “qualified education expenses.”
Quick note: in order for qualified education expenses to count toward the lifetime learning credit, the educational materials must have been paid by either the student or their spouse if they file a joint tax return, the student who is being claimed as the taxpayer’s dependent on their tax return, or by a third-party payer, such as another family member. The payment for these expenses must have been made by a check, cash, a credit or debit card, or paid by money from a loan. During a situation where education expenses are paid for using funds from a loan, the credit may be applied to the year that the expenses were paid for, and not the year the loan was taken out.
Some of the qualified expenses for this education credit include:
- School fees
- Enrollment fees
- Attendance fees
- School activity fees
Some of the education expenses that do not qualify for the LLC include:
- Room and board
- Medical expenses
- Student health fees
- Other personal expenses.
Who Can Claim The Lifetime Learning Credit?
The lifetime learning credit can be claimed by the taxpayer whose dependent is enrolled in school or by the student themselves.
How To Claim The Life Learning Credit
In order to claim the LLC, the student must have received IRS Form 1098-T, Tuition Statement, from their eligible institution. This tax form is usually issued to students by the school by January 31st of the tax year, and using this statement, students can calculate the amount of the credit they are eligible to claim. If, upon using this form, the tax credit amount is incorrect, or in the situation that the student did not receive the tax form, they must contact their school to rectify the situation.
After calculating their credit amount, the taxpayer must then fill out IRS Form 8863, Education Credits, and file the completed form with their federal income tax return during the tax season. This form is used for the two main types of education credits: the Lifetime Learning Credit and the American Opportunity Tax Credit (AOTC). Taxpayers cannot claim the same costs for both the AOTC and the LLC. If they qualify for both, however, the AOTC offers greater tax savings and is partially refundable, so that approach would be recommended.
Tax credits are a great way to save money when furthering your education. If you have any questions about how to claim tax credits for your eligible education expenses, schedule a free consultation with a tax professional at Ideal Tax to learn about your tax break eligibility.