The 2014 tax season is about to open, and college students should check their mail for a Form 1098-T from their school. Most colleges also make this form available online through a student web portal. This tuition statement form is for informational purposes, you do not need to attach a copy to your tax return. The college also sends a copy to the IRS.
If you paid tuition for yourself, your spouse or a dependent, you may need the information on this form to receive one of two tuition tax credits available for 2013 tax returns. The 1098-T will include all tuition paid including tuition for the Spring 2014 semester if paid within the first three months of 2014. It will also indicate the amount of scholarships and grants that were used to offset tuition costs.
What tax credits are available for 2013 returns?
The American Opportunity Credit was created under the American Recovery and Reinvestment Act of 2009 and extended through 2017 with the passage of the American Taxpayer Relief Act of 2012. It gives a tax credit for four years of undergraduate study of up to $2,500 a year. A portion (40 percent/$1,000) of the credit is refundable, which means the credit in excess of taxes due will be refunded.
The Lifetime Learning Credit is a nonrefundable credit of up to $2,000. Unlike the American Opportunity Credit, which may only be used up to four tax years per student, is not limited in the number of years it can be taken.
You may take either credit, but not both. The American Opportunity Credit is the most generous, but for a student that has already claimed four years of this credit the Lifetime Learning Credit offers some tax savings.
Who qualifies for the American Opportunity credit?
To take this credit, the taxpayer’s Modified Adjusted Gross Income must be $90,000 or less for single, head of household and qualifying widow(er) filing statuses, $180,000 for married filing jointly. Married filing separate taxpayers cannot take the credit.
The student must be pursuing a degree or other education credential. The student must be enrolled at least half time (usually considered 6 credit hours) for a minimum of one academic semester during the tax year. Students who have been convicted of a felony for possessing or distributing a controlled substance are not eligible for the tax credit.
Who qualifies for the Lifetime Learning Credit?
The maximum Modified Adjusted Gross Income for a single, head of household or widow(er) taxpayer is $63,000. For married filing jointly, the maximum is $127,000. Married filing separate taxpayers are not allowed the credit.
The student does not need to be pursuing a degree or other education credential. The credit is allowed for one or more courses and may be every year for undergraduate coursework.
What expenses can be used in calculating the credit?
Qualified expenses include tuition and fees required for attendance. The American Opportunity Credit allows for required course materials, supplies and equipment purchased either from the college or from another supplier. The Lifetime Learning Credit requires materials, supplies and equipment be purchased from the educational institution.
What forms are needed to claim these credits?
Both credits are claimed on IRS Form 8863.