How Much Is the Lifetime Learning Credit?

The Lifetime Learning Credit is a tax credit designed to assist taxpayers with the costs of higher education. This credit helps make postsecondary education, including college, graduate school, and vocational training, more financially accessible. Its purpose is to reduce a taxpayer’s federal income tax liability, thereby lowering the overall burden of educational expenses.

Eligibility Requirements

Claiming the Lifetime Learning Credit depends on specific criteria for both the student and the taxpayer. The student must be enrolled at an eligible educational institution for at least one academic period during the tax year. This enrollment can be for courses leading to a degree or for acquiring or improving job skills, distinguishing it from credits that require degree pursuit.

The taxpayer claiming the credit can be the student, their spouse, or a dependent listed on their tax return. If the student is claimed as a dependent on another person’s tax return, only that person can claim the credit for the student’s expenses. Income limitations apply, with modified adjusted gross income (MAGI) determining eligibility. For single filers, the full credit can be claimed with a MAGI up to $80,000, phasing out completely at $90,000. For those married filing jointly, the full credit is available for a MAGI up to $160,000, with the credit phasing out entirely at $180,000.

Qualified Education Expenses

Qualified education expenses for the Lifetime Learning Credit generally include tuition and fees required for enrollment or attendance at an eligible educational institution. Such expenses also encompass course-related books, supplies, and equipment, but only if these items are required to be paid directly to the institution as a condition of enrollment or attendance.

Expenses that do not qualify for the credit include personal living expenses like room and board, insurance, medical expenses, and transportation, even if they are a condition of enrollment. Additionally, expenses paid with tax-free funds, such as scholarships or grants, cannot be used to calculate the credit.

Calculating the Credit Amount

The Lifetime Learning Credit is calculated as 20% of the first $10,000 in qualified education expenses. The maximum credit a taxpayer can receive is $2,000 per tax return. This $10,000 expense limit and $2,000 maximum credit apply per tax return, not per student, even if multiple students are included on the same return.

This credit is non-refundable, meaning it can reduce a taxpayer’s tax liability down to $0, but it will not result in a tax refund if the credit amount exceeds the tax owed. Any portion of the credit that remains after reducing the tax liability to zero is lost and cannot be carried forward to future tax years. For example, if qualified expenses are $5,000, the credit would be $1,000 (20% of $5,000). If expenses are $10,000 or more, the credit is capped at $2,000.

Claiming the Credit

To claim the Lifetime Learning Credit, taxpayers typically need to receive Form 1098-T, Tuition Statement, from their educational institution. This form reports the qualified tuition and related expenses paid during the tax year. Educational institutions are required to provide this form to eligible students by January 31st of the following calendar year.

The credit is then claimed on Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits). This form requires information from Form 1098-T and other records of qualified expenses. Form 8863 is then attached to Form 1040, U.S. Individual Income Tax Return.