One way the government encourages behavior that it sees as beneficial is by offering tax breaks. They offer a mortgage interest deduction to encourage homeownership.  They offer deductions to encourage charitable giving. And, they offer tax credits for some college expenses.

We wrote about the American Opportunity Tax Credit (AOTC) in an earlier post.  Here we’ll talk about another education tax credit, the Lifetime Learning Credit (LLC).  

Like the AOTC, the Lifetime Learning Credit is a tax credit – not a deduction.  This means that the credit directly reduces your tax bill rather than reducing the amount of taxable income.  Unlike the AOTC, this tax credit is not refundable. That means that you will not get a refund if this credit reduces your tax bill to zero.  And the amount of the credit is also different. The Lifetime Learning Credit is up to 20% of the first $10,000 of eligible expenses. So, in order to get the full credit, you will need to have at least $10,000 of qualifying expenses.

What is a qualifying expense?

  • Tuition and fees required to enroll or attend a class
  • Fees or expenses for books and materials that are paid to the school as a condition of enrollment or attendance 
  • Student activity fees that are required as a condition of enrollment 

What is not a qualifying expense?

  • Room and board 
  • Books and materials that are not conditions for enrollment
  • Any expenses covered by other tax-advantaged funds- for instance, you cannot claim an expense paid with 529 funds as a qualifying expense

Who is an eligible student?

A student taking courses or enrolled at an eligible educational institution, i.e. any accredited colleges and universities, vocational schools, and other post-secondary institutions. 

  • The student does not necessarily need to be pursuing a degree- they can be taking the courses to get another recognized education credential or to improve job skills and still be an eligible student
  • Unlike the AOTC, the Lifetime Learning Credit is not limited to the first four years of post-secondary education – so even courses that you or your student take years later to improve your job skills can qualify you as an eligible student

Similarities and Differences

Another item to note, there is an income phaseout for this credit.  If your Modified Adjusted Gross Income (MAGI) is between $114,000 and $134,000 for Married Filing Jointly tax returns or between $57,000 and $67,000 for Single, Head of Household or Qualifying widow(er) returns, then you won’t be eligible to take the full credit, and above those amounts you won’t be eligible to take any of the credit. 

Like the AOTC, you are not eligible to take the credit if you file as Married Filing Separately. In addition, another big difference between this credit and the AOTC is that this credit is per tax return – not per student.  

Like the AOTC, you cannot claim this credit if you are claimed on someone else’s tax return. And, you must have received a Form 1098-T from an eligible institution showing the amounts paid to the institution during the year.

This is another example of why planning how you’re going to pay for all of the college degree is important.  A little income planning as well as some planning for which education funds should be used and in what order could make a difference in how much you actually pay out of your own pocket for the college degree.  If you don’t want to lose an opportunity to have the government help you out with the college bill, some planning is in order.