Did you know that you can get money removed from your federal tax bill if you paid for college this year? Yes, it’s like a coupon for income taxes and it can lopp off as much as $2,500 per student! That means, if you have dependents for whom you paid college tuition, you can get up to $2,500 off your tax bill for each dependent who wen to college on your dime. Plus…and this is huge…some of the credit is refundable. That means you could actually receive money from the IRS – cash money- for the tuition you paid. Interested? Read on.
IRS Form 8863, Education Credits
First, there are two types of education credits that can be claimed on IRS Form 8863. One is for money paid to attend a four-year college to get a bachelor’s degree. It’s good for four years only, then you’re done. It’s called the American Opportunity Tax Credit and it’s worth up to $2500 per eligible student. 40% of this credit is refundable, which means you can actually get money from the IRS. It will be like getting an IRS refund. In fact, it is an IRS refund. Wow!
The American Opportunity Tax Credit offers great potential for tax savings, more than the next credit, the Lifetime Learning credit. On the other hand, it also has a higher threshold: you can’t have a drug felony on your record. If you do, you’re not eligible.
The other type of education credit covered by IRS Form 8863 is the Lifetime Learning Credit. As the name implies, this tax credit can be used your entire lifetime since there no limit to the number of times you can apply for and receive this credit. As the name also implies, it’s for lifetime learning, not just four years of college to get a degree. It can be used for college courses that you take for your career, and the courses don’t have to be leading to a degree.
How to Submit IRS Form 8863
If you’re going to claim a tax credit for college tuition paid for yourself or your dependents, you can’t use IRS Form 1040EZ to file your income tax return. You must use the 1040 or 1040A. Attache IRS Form 8863 to your 1040(A). It’s part of most software packages that prepare your taxes for you. If you want to see the actual form, check it our here on the IRS website.