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Tax Benefits Explored

Who typically qualifies for tax benefits?

According to IRS Form 970, eligibility requirements for the Hope Credit and the Lifetime Learning Credit include:

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  • Expenses paid for higher education must be qualified
  • The student receiving the benefit of the credit must be eligible based on the requirements for each credit
  • The student is yourself, a spouse, or a dependent that you claim a tax exemption for.

What are qualified expenses?

Qualified expenses are:

  • Tuition for each academic period you are enrolled
  • Related expenses paid with student loans or other borrowed funding
  • Expenses related to student activities including books and other school supplies
  • Expenses that are not refunded by the college or university when a student withdraws from a course

What are the differences between the two credits?

Students convicted of a drug-related felony are not eligible for the Hope Credit but still qualify for the Lifetime Learning Credit. Also, the Lifetime Learning Credit can be used for all years of education, but the Hope Credit is only available for the first two years of post-secondary education.

If my tax credits reduce the tax I owe below $0 does the IRS pay me?

No, the IRS does not send you a check for a tax credits that reduce your owed tax below $0.

If I am married and my spouse is also in school, can we both take a tax credit?

If you are married and both you and your spouse are in school, each person can choose their tax credit. This means that married couples can qualify for up to $4,000 in tax credits reducing the burden of tuition significantly.

What is the difference between a tax credit and a tax deduction?

Tax credits are more beneficial than tax deductions. Tax deductions reduce your taxable income and tax credits actually reduce your taxes. For example, a $2,000 tax deduction takes $2,000 off of your income, saving you a couple hundred dollars in taxes but a $2,000 tax credit saves you the full $2,000.

Can I claim a Hope Credit and a Lifetime Learning Credit in the same year?

No, the IRS does not allow you to take all deductions so choose the best tax advantage for your family.

What income bracket do I have to be in?

Income restrictions often change, so check the restrictions every year. If you make more than $53,000 as an individual or $107,000 for a joint return, you are not eligible for credit and deduction options. For more detailed information about tax benefits of higher education, visit the IRS website.

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Last Reviewed: October 2021