Form 1098-T, Tuition Statement reports the amount of
qualified education expenses paid by the student during the tax year. Your 1098-T may qualify you for education-related tax benefits like
the American Opportunity Credit, Lifetime Learning Credit, or the
Tuition and Fees Deduction. If you qualify for more than one benefit,
the TurboTax Education Optimizer will automatically select the one that
gives you the biggest federal tax benefit.
The IRS doesn't
refund your tuition costs, but they will give you education credits, or an education deduction.
The main difference
between getting a deduction and receiving a tax credit is that a deduction
lowers your income that is subject to tax whereas the tax credit lowers the tax itself. The following is a list
of credits and deduction available...
American Opportunity Credit
The American
Opportunity Credit can save you up to $2,500 in tax for the education expenses
of each eligible student. To qualify, the student must pursue a degree at a
school that is eligible to participate in the federal student aid program. The
credit is only available to students in their first four years of attendance,
who enroll at least half time for one academic period during the tax year and
do not possess a felony drug conviction.
The credit amount
includes the costs you incur for tuition, fees and course-related books,
supplies and equipment necessary to attend the institution. If the credit
amount exceeds the amount of tax you owe, you can receive up to $1,000 of the
credit as a refund.
Lifetime Learning Credit
Lifetime Learning
Credits are available to all taxpayers who attend at least one course during
the year at an institution eligible to participate in the federal student aid
program. It is not necessary that the student pursue a degree or certification
to qualify, and it's available for any year of study. The credit covers the
cost of tuition and fees plus any amount for books and supplies you are
required to purchase directly from the school.
This credit is of
particular value to those students attending postgraduate programs. As of 2016,
the maximum benefit of the credit is $2,000. However, the lifetime learning
credit is nonrefundable if it exceeds your tax bill for the year.
Tuition deductions
If you prefer to
claim a deduction for your school expenses rather than a credit, the IRS allows
you to deduct some of your tuition and fee payments. Since this is not an
itemized expense, anyone can take the deduction. One thing to keep in mind is
that you can never claim more than one educational tax benefit per student, per
year. You cannot claim a tuition deduction and a tax credit in the same year
for the same student.
