The Tax Code includes two credits that can help taxpayers reduce higher education costs: the American opportunity tax credit (AOTC) and the lifetime learning credit (LLC). You can claim both credits on the same return, but not for the same student or the same qualified expenses.
The two credits have numerous characteristics in common, but there are some key differences. The following chart provides a comparison of the two credits.
Comparison of Education Credits for 2019
|American Opportunity Tax Credit||Lifetime Learning Credit|
|Maximum amount||$2,500 per eligible student per year|
(100% of the first $2,000, 25% of the next $2,000)
|$2,000 per tax return|
|Refundable?||Yes, up to 40% of the credit||No|
|Filing status||All except Married Filing Separately||All except Married Filing Separately|
|2019 modified adjusted gross income limit||Married Filing Jointly: $180,000|
All others: $90,000
|Married Filing Jointly: $136,000|
All others: $68,000
|Available if taxpayer is a dependent on someone else’s return?||No||No|
|Citizenship requirement||Taxpayer or spouse must be a U.S. citizen or resident alien||Taxpayer or spouse must be a U.S. citizen or resident alien|
|Program requirement||Pursuit of degree or credential not required|
Available for courses to acquire or improve job skills
|Enrollment requirement||Student must be enrolled at least half-time for at least one academic period during the tax year||Credit available for one or more courses|
|Number of years the credit can be claimed per student||No more than four tax years||Unlimited|
|What expenses qualify for the credit?|
|For whom can a taxpayer claim the credit?|
|Taxpayer can claim the credit for qualified expenses paid by:|
As noted above, it is possible to file a return that claims both the AOTC and the LLC, but they must be for different students and different expenses. If you have expenses that qualify for both credits, the American opportunity credit is generally more valuable. Similarly, you cannot claim either credit for expenses that were paid using a tax-free distribution from a 529 plan. Carefully document your payments to show that different expenses are being used to justify an education tax credit and a 529 tax-free distribution.
To learn more about how tax credits can help you afford education costs, and how to weigh the benefits of different credits and education savings plans, please contact your CRI tax advisor.