Taking Advantage of College Expenses at Tax Time

Here’s a rundown of how the federal Hope and Lifetime Learning tax credits can help offset the cost of paying for college. 

Benefits Overview

The federal government offers two tax credits to help students and their families offset the costs of higher education.  Both Hope and Lifetime Learning tax credits – also referred to as education credits – can reduce the income tax for families who are paying for college.

What is the Hope tax credit?

Tax credits reduce the amount of income tax that must be paid.  Unlike deductions (which reduce the amount of income subject to tax), tax credits directly reduce the income tax itself. 

-         Taxpayers may be able to claim a Hope tax credit of up to $1,500 for qualified education expenses paid for each eligible student.

-         The Hope tax credit is a nonrefundable credit.  It can reduce a taxpayer’s income taxes to zero, but if the Hope credit amount is greater than the total liability the excess is not refunded.

-         Allowable Hope credits may be limited by income amounts and the amount of tax due.

Who can claim the Hope credit?

Generally, taxpayers can claim the Hope credit if all three of the following requirements are met:

• The taxpayer pays qualified higher education expenses.
• The educational expenses are paid for an eligible student.
• The eligible student is the taxpayer, his/her spouse, or a dependent for which an exemption is claimed on their tax return.

What is the Lifetime Learning tax credit?

Again, tax credits reduce the amount of income tax that must be paid.  Unlike deductions (which reduce the amount of income subject to tax), tax credits directly reduce the income tax itself. 

• Taxpayers may be able to claim a Lifetime Learning tax credit of up to $2,000 for qualified education expenses paid for each eligible student enrolled in an eligible educational institution.
• There is no limit on the number of years this credit can be claimed for each student.
• The Lifetime Learning tax credit is a nonrefundable credit.  It can reduce a taxpayer’s income taxes to zero, but if the Lifetime Learning credit amount is greater than the total liability the excess is not refunded.
• Allowable Lifetime Learning credits may be limited by income amounts and the amount of tax due.

Who can claim the Lifetime Learning credit?

Generally, taxpayers can claim the Lifetime Learning credit if all three of the following requirements are met:

• The taxpayer pays qualified higher education expenses.
• The educational expenses are paid for an eligible student.
• The eligible student is the taxpayer, his/her spouse, or a dependent for which an exemption is claimed on their tax return.

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