William Byrnes' Tax, Wealth, and Risk Intelligence

William Byrnes (Texas A&M) tax & compliance articles

How Will The Lifetime Learning Credit Help Pay My Higher Education Tuition?

Posted by William Byrnes on May 15, 2014

The IRS’ Tax Tip 2014-41 answers this question, in conjunction with its > online publication < .

The Lifetime Learning Credit is:

  • Limited to $2,000 per tax return, per year.
  • For all years of higher education, including classes for learning or improving job skills.
  • Limited to the amount of the tax due for that year.
  • For the cost of tuition and required fees, plus books, supplies and equipment.
  • The taxpayer’s school should provide a Form 1098-T, Tuition Statement, showing expenses for the year.
  • File Form 8863, Education Credits, to claim these credits on the tax return.
  • The credit is subject to income limits that could reduce the credit amount.
Maximum credit Up to $2,000 credit per return
Limit on modified adjusted gross income (MAGI) $127,000 if married filling jointly;
$63,000 if single, head of household, or qualifying widow(er)
Refundable or nonrefundable Nonrefundable—credit limited to the amount of tax you must pay on your taxable income
Number of years of postsecondary education Available for all years of postsecondary education and for courses to acquire or improve job skills
Number of tax years credit available Available for an unlimited number of years
Type of program required Student does not need to be pursuing a program leading to a degree or other recognized education credential
Number of courses Available for one or more courses
Felony drug conviction Felony drug convictions do not make the student ineligible
Qualified expenses Tuition and fees required for enrollment or attendance (including amounts required to be paid to the institution for course-related books, supplies, and equipment)
Payments for academic periods Payments made in 2014 for academic periods beginning in 2014 or beginning in the first 3 months of 2015


How does a tax credit work?

A tax credit reduces the amount of income tax a taxpayer may have to pay. Unlike a deduction, which reduces the amount of income subject to tax, a credit directly reduces the tax itself. The lifetime learning credit is a nonrefundable credit. This means that it can reduce tax owed to zero, but if the credit is more than the tax owing then the excess will not be refunded.

Effect of the Amount of Your Income on the Amount of Your Credit

The amount of the lifetime learning credit is phased out (gradually reduced) if MAGI is between $53,000 and $63,000 ($107,000 and $127,000 if you file a joint return). For 2013, by example, a taxpayer cannot claim a lifetime learning credit if MAGI is $63,000 or more ($127,000 or more if a joint tax return).
   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on the federal income tax return.  MAGI is the AGI on line 38 of the 1040 form, modified by adding back any:

  1. Foreign earned income exclusion,
  2. Foreign housing exclusion,
  3. Foreign housing deduction,
  4. Exclusion of income by bona fide residents of American Samoa, and
  5. Exclusion of income by bona fide residents of Puerto Rico.

For an indepth analysis of deductions for donations to U.S. charities (and the government’s policy encouraging or discouraging these donations), download my article at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2304044

If you are interested in discussing the Master or Doctoral degree in the areas of financial services or international taxation, please contact me profbyrnes@gmail.com to Google Hangout or Skype that I may take you on an “online tour” 

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