Skip to Main Navigation | Skip to Content
The American opportunity credit allows taxpayers to claim a credit of up to $2500 for qualified education expenses paid for each eligible student. A tax credit reduces the amount of income tax the taxpayer may have to pay. Unlike a deduction, which reduces the amount of income subject to tax, a credit directly reduces the tax itself. Forty percent of the American opportunity credit may be refundable. The allowable American opportunity credit may be limited by the amount of the taxpayer's income. The refundable part of the credit may be limited by the amount of the taxpayer's tax. It is available for the only for the first 4 years of postsecondary education and only for 4 tax years per eligible student (including any years the HOPE credit was claimed). The student must be enrolled on at least a half-time basis for at least one academic period during the year for the expenses to be qualified and must be pursuing an undergraduate degree or other recognized education credential. An eligible student is either the taxpayer, taxpayer's spouse, or a dependent who is claimed as an exemption on the taxpayer's tax return.
The lifetime learning credit allows taxpayers to claim a maximum credit up to $2,000 per tax return incurred during the taxable year for qualified tuition and fees for eligible students for post-secondary education, including any course of instruction to acquire or improve job skills. There is no limit on the number of years the lifetime learning credit can be claimed for each student. The lifetime learning credit may be limited by the amount of the taxpayer's income and is a nonrefundable credit.
Both credits limit qualified expenses to the expenses of the taxpayer, the taxpayer's spouse, or a dependent of the taxpayer. Additionally, the total of qualified expenses must be reduced by any tax-free educational assistance (grants, scholarships, employer-provided tuition assistance) and by any refunds of qualified expenses. Qualified expenses paid for with loans are eligible. For each qualifying student, taxpayers must choose to claim either the American opportunity credit, the lifetime learning credit, or the exclusion for certain distributions from an education savings account for the taxable year.
To claim the credits, taxpayers are required to provide the name and taxpayer identification number of the student on the return. Educational institutions are required to report information related to higher education tuition and related expenses assessed during the taxable year.
IRS regulations require universities to report qualified tuition and related expenses and provide information to each student on a 1098-T form. Universities have the option of reporting qualified tuition and related expenses either as they are billed, or as they are paid. The University of Central Missouri has chosen to report these expenses as they are billed. These expenses appear on the 1098-T form.
What Does This Mean to Me?
Students who attend a spring semester (this term begins in January) and who are enrolled for spring classes prior to December 31 are billed for the classes in December. Under this scenario, qualified tuition and expenses for the spring would not appear on that year's 1098-T form. This is because amounts that appear on a 1098-T form are those that were billed in that year. If an expense or credit is for that year but was billed in a previous year, it will appear on the previous year's 1098-T form.
For additional information regarding federal education credits, please refer to IRS publication 970-Tax Benefits for Education.