Lifetime Learning Credit: Things You Need to Know and See if You Qualify
Lifetime Learning Credit: Things You Need to Know and See if You Qualify
If you are a student, a parent with school-aged children, you probably heard about the term “Lifetime Learning Credit.” What exactly is Lifetime Learning Credit? Do you qualify for this? What are the benefits of it? These are the questions we are about to answer as we talk about there is to know about Lifetime Learning Credit.
What is Lifetime Learning Credit?
Lifetime Learning Credit (LLC) as defined by benefits.gov, “is a tax credit used to offset the cost of tuition and related expenses.” This covers eligible students to pay for undergraduate, graduate and professional degree courses and those courses taken to get or improve job skills. LLC is a non-refundable tax credit which means it can only reduce a person's tax liability to zero. No part can be issued as a refund and there are also income limitations for this tax credit.
$2,000 is the maximum amount per year set as LLC. However, you need to spend at least $10,000 worth of qualified expenses to get the maximum credit.
Who Qualifies for Lifetime Learning Credit?
As mentioned, LLC applies to students enrolled in undergraduate, graduate and professional degree courses. Furthermore, it also covers those courses taken to get or improve job skills. To claim the LLC, a taxpayer must meet the following criteria:
- This covers to you, your spouse or a dependent you listed on your tax return
- The taxpayer or the dependents have qualified education expenses at an eligible educational institution
- Must taking higher education course or courses to get a degree or to get or improve job skills
- You must be enrolled for at least one academic period beginning in the tax year
- Your income must be within the income limits to qualify: for 2021, $139,000 for joint filers and $69,000 for all others (up from $138,000 and $69,000 in 2020)
An eligible institution is a school offering education beyond high school. For instance, these are any college, university, or trade school. These are also post-secondary educational institutions eligible to participate in a student aid program run by the U.S. Department of Education.
The academic period is defined by IRS (Internal Revenue Service) as a semester, trimester, quarter, summer session, or others. Your chosen school usually has full control over how the academic period works.
How to Qualify for Lifetime Learning Credit?
If all of those criteria apply to you, the next question is “how do I qualify?” These are the ways how one can quality and claim the LLC.
- A taxpayer must accomplish Form 1098-T, Tuition Statement from an eligible educational institution as required by law.
- Identify and list down all the qualified education expenses
To claim the LLC, you must also complete the Form 8863 and attach the completed form to your Form 1040 or Form 1040-SR
In addition, Form 8863 requires you to put your school’s employer identification number (EIN) and if you don’t have it yet, ask a representative from your school. For the “Schedule 3: Additional Credits and Payments” section of the said form, not all can apply to you, and it is best to only fill out the lines applicable.
What are qualified education expenses?
The IRS defines qualified education expenses as “amounts paid for tuition, fees and other related expenses for an eligible student.”
Qualified education expenses are “amounts paid for tuition, fees and other related expense for an eligible student that are required for enrollment or attendance at an eligible educational institution.” This also includes activity fees you are required to pay to enroll or attend the school.
You need to include the following qualified expenses:
- You or your spouse if you file a joint return,
- A student you claim as a dependent on your return, or
- A third party including relatives or friends.
You can pay the expenses in cash, check, credit or debit card or paid with money from a loan. Moreover, take the credit of the year you pay the expenses, not the year you get or repaid the loan if you paid with a loan.
Education expenses that do NOT qualify
The IRS listed down the expenses not covered by LLC and they are the following:
- Room and boarding
- Insurance
- Medical expenses (including student health fees)
- Transportation
- Similar personal, living or family expenses
Moreover, the expenses for sports, games, hobbies or non-credit courses do not qualify for the education credits or tuition and fees deduction, except when the course or activity is part of the student’s degree program according to IRS.
Summary
In conclusion, the taxpayer, spouse or a dependent taking a higher education course can apply for LLC. The recipient can be also take courses or other recognized education credentials or to get or improve job skills.
We just told you how lifetime learning credit works, how someone qualifies and how to claim it. If you are someone who meets all the criteria, it is best to file and claim it whenever you can but before the deadline. The tax filing deadline usually falls from mid-April to mid-May of the tax year, and it is best to file before the deadline to avoid problems.
Do you still have trouble with lifetime learning credit? Book a free consultation today with our advisors here at CreditPlanned.
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