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Understanding The Lifetime Learning Tax Credit What is it? The Lifetime Learning credit is a tax credit available to individuals who file a tax return and owe taxes. This means the amount of the credit is subtracted from a family’s actual tax liability, rather than reducing taxable income like a tax deduction does. The Lifetime Learning credit is not refundable. Maximum Credit A family may claim a tax credit up to $1,000 per tax year (until January 1, 2003) and $2,000 per tax year (after that date) for the taxpayer, taxpayer’s spouse, or any eligible dependents for an unlimited number of tax years. A family may claim up to 20% of $5,000 of eligible expenses for expenses paid after June 30, 1998 and prior to January 1, 2003, and up to 20% of $10,000 of eligible expenses (for expenses paid after January 1, 2003 and after). The actual amount of the credit depends on the family’s income, the amount of qualified tuition and fees paid, and the amount of certain scholarships and allowances subtracted from tuition. This credit is family-based (e.g., $1,000 per family) rather than dependent-based like the Hope credit. Who Qualifies? The Taxpayer An eligible taxpayer must file a tax return and owe taxes to claim the credit. The taxpayer must also claim the eligible student as a dependent unless the credit is for the taxpayer or the taxpayer’s spouse. The taxpayer is eligible for the maximum benefit with an Adjusted Gross Income (AGI) of up to $40,000 for a single taxpayer (or $80,000 for married taxpayers). The credit amount is phased out between $40,000 and $50,000 for single taxpayers (or $80,000 and $100,000 for married taxpayers). The Student An eligible student may be enrolled at least half time in an eligible program leading to an undergraduate or graduate degree at an eligible school during the calendar year OR may be enrolled at any enrollment level in any course of instruction at an eligible school to acquire/improve the student’s job skills during the calendar year. The student may claim the credit if the student is not claimed as a dependent by another taxpayer. How do you get it? To qualify for this credit, the taxpayer must report the amount of tuition and fees paid, as well as the amount of certain scholarships, grants, and untaxed income used to pay the tuition and fees. Current law specifies that schools will supply this information in the form of a “return” to individual taxpayers and to the IRS. Can a Family Claim Multiple Benefits? A family may claim a Lifetime Learning credit, a Hope credit, and an exclusion from gross income for certain distributions from qualified State tuition programs or education IRAs as long as the same student is not used as the basis for each credit or exclusion AND the family does not exceed the maximum per family as listed in this brochure under “Maximum Credit.”
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