Education Tax Credits

By Frank Minuti, CPA

For the 2010 income year (extended to 2011 & 2012) the following tax credits exist for students enrolled in institutions of higher education:

American Opportunity (Hope) Tax Credit

The maximum benefit per student is $2,500 which is calculated as 100% of the first $2,000 and 20% of the next $2,500 spent for qualified education expenses (QEE). QEE costs include tuition, fees and course materials required for enrollment.

• The credit is available for the first four years of undergraduate education for students that are enrolled at least half-time.
• The credit is phased out for taxpayers with modified adjusted gross incomes from $80,000 - $90,000 ($160,000 - $180,000 for joint returns).
• 40% of the credit is refundable (can be received even if no taxes are owed by the taxpayer), the credit is non-refundable if claimed by a child who is subject to kiddie tax.
• The student(s) must be enrolled in an undergraduate program leading to a degree, credential or certificate.

Lifetime Learning Credit

The maximum benefit per tax year is $2,000 which is calculated as 20% of the first $10,000 of QEE costs paid.

• The credit is not limited to the first four years of undergraduate education and the student(s) does not have to be at least a half-time student.
• The credit is phased out for taxpayers with modified adjusted gross incomes from $50,000 - $60,000 ($100,000 - $120,000 for joint returns).
• The credit is not refundable.
• The student must be enrolled in either an undergraduate or graduate program.
• California does not have tax credits for the costs of higher education.