Can a Dependent Claim an Education Credit?

Education tax credits can help reduce the cost of higher education by directly lowering a taxpayer’s income tax liability. These credits provide financial relief for expenses incurred while pursuing post-secondary education. Understanding eligibility rules and claiming these benefits is important for maximizing potential tax savings.

Understanding Student and Dependent Eligibility

Eligibility for education credits depends on the student’s status and their relationship to the taxpayer claiming the credit. A qualifying student must be enrolled at an eligible educational institution, pursuing a degree or other recognized educational credential. They must be enrolled for at least one academic period during the tax year and, for some credits, be enrolled at least half-time. A student cannot have a felony drug conviction at the end of the tax year to be eligible for certain credits.

The Internal Revenue Service (IRS) defines a dependent based on several tests, including relationship, age, residency, and support. A person qualifies as a dependent if they meet these criteria, allowing another taxpayer to claim them on their tax return. This dependent status directly impacts who can claim education credits.

If a student is claimed as a dependent on another person’s tax return, only that person can claim the education credit for the student’s qualified expenses. The dependent student cannot claim the credit in this scenario, regardless of who actually paid the expenses. Qualified education expenses generally include tuition and fees required for enrollment or attendance at an eligible educational institution.

American Opportunity Tax Credit Details

The American Opportunity Tax Credit (AOTC) offers a maximum annual credit of $2,500 per eligible student. This credit is calculated as 100% of the first $2,000 of qualified education expenses and 25% of the next $2,000. The AOTC is partially refundable; if the credit reduces a taxpayer’s liability to zero, 40% of any remaining credit, up to $1,000, can be received as a refund.

This credit is available for a maximum of four tax years per student. To qualify, the student must be enrolled in a program leading to a degree or recognized credential and must be attending at least half-time for at least one academic period during the tax year. Qualified expenses for the AOTC are broad, including tuition, required fees, and course materials like books, supplies, and equipment, even if these items are not purchased directly from the educational institution. However, personal expenses such as room and board, transportation, or medical insurance do not qualify.

Income limitations apply to the AOTC. For the 2024 tax year, the credit begins to phase out for single filers with a Modified Adjusted Gross Income (MAGI) between $80,000 and $90,000. For those married filing jointly, the phase-out range is between $160,000 and $180,000. Taxpayers with MAGI above these upper thresholds cannot claim the credit.

Lifetime Learning Credit Details

The Lifetime Learning Credit (LLC) provides a maximum annual credit of $2,000 per tax return. This amount is 20% of the first $10,000 in qualified education expenses paid. Unlike the AOTC, the LLC is non-refundable, meaning it can reduce a tax liability to zero but will not result in a refund.

There is no limit on the number of years the LLC can be claimed. This credit is available for undergraduate, graduate, and courses taken to acquire or improve job skills. It does not require the student to be pursuing a degree or to be enrolled at least half-time.

Qualified expenses for the LLC are generally limited to tuition and fees required for enrollment or attendance. Books, supplies, and equipment are qualified expenses only if required to be purchased directly from the educational institution. The LLC has the same income limitations as the AOTC for the 2024 tax year.

Reporting Education Credits

To claim education credits, taxpayers typically receive Form 1098-T, Tuition Statement, from an eligible educational institution. This form provides information about qualified tuition and related expenses paid during the tax year. Taxpayers should also keep records of other qualified expenses not reported on this form, such as receipts for books or supplies.

The calculation and claiming of these education credits are performed using IRS Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits). This form must be completed and attached to the federal income tax return. The credit is ultimately claimed on the tax return of the individual who claims the student as a dependent.