People often forget that it’s not just the students struggling to pay for a college education, it’s their families, too. Parents tend to bear the brunt of the financial hardships in this category. With tuition costs continuing to rise at many colleges and universities, it seems there is no way to avoid taking out tons of student loans, in addition to acquiring scholarships and grants.
However, there are resources for parents working to make sure they can send their children to college without going bankrupt in the process. Parents that haven’t considered tax credits as it relates to paying college tuition have yet another alternative they can turn to.
For those that aren’t quite familiar with tax credits, receiving this type of credit allows a person to subtract a certain amount of money from their tax bill. The great thing is that there are tax credit programs that apply to paying college costs–namely, tuition, which can be a hefty expense regardless of what type of college a student gets accepted to.
There are currently two different types of tuition tax credit programs that students and their parents can look into. The first is the Lifetime Learning Credit and the second is the American Opportunity Tax Credit.
As with most tax related matters, there are a number of guidelines to be followed and requirements that must be met in order for an individual to receive tax credits for money paid in college tuition. The major factors that determine how many credits a person could potentially get include:
- Area/location where the person lives
- What type of credit is used
- The specific use of the money spent
The most important thing to keep in mind is that a family can’t claim more than one (1) tax credit for the same student in any one (1) year. In order for a student to be allowed to claim the tax credit for the money they’ve spent on tuition and other school related expenses, that student cannot be a dependent on someone else’s tax form, such as their parents. If a student is listed as a dependent on their parents’ tax form, then it will be the parents who will receive the tax credit.
The Lifetime Learning Credit program provides tax credit to individuals that use their funds specifically for paying college tuition and related fees. A student must also be currently enrolled in an undergraduate or graduate program or taking college courses for the purpose of improving existing job skills and/or training to acquire new skills.
The American Opportunity Tax Credit program comes with a few more benefits compared to the Lifetime Learning Credit program. While it does give individuals tax credits for funds spent on tuition and fees, it also counts for money spent on supplies and textbooks that are needed for courses. Students must be at least half-time status and pursuing an undergraduate degree. There is also the possibility for low-income households who owe little to no taxes to have some of the credit paid back to them.