What Is It?
The Lifetime Learning credit is a tax credit available to individuals who file a tax return and owe taxes. This means the amount of the credit is subtracted from the taxes your family owes, rather reducing taxable income like a tax deduction does. You can't get a refund for the Lifetime Learning credit if your family doesn't pay taxes. If your family owes less in taxes than the maximum amount of the Lifetime Learning tax credit for which your family is eligible, you can only take the credit for the amount you owe in taxes.Your family may claim a tax credit up to $1,000 per tax year (until January 1, 2003) and up to $2,000 (after that date) for the taxpayer, taxpayer's spouse, or any eligible dependents for an unlimited number of tax years. A family may claim up to 20% of $5,000 of eligible expenses for expenses paid after June 30, 1998, and prior to January 1, 2003, and up to 20% of $10,000 of eligible expenses (for expenses paid after January 1, 2003, and after).The actual amount of the credit depends on your family's income, the amount of qualified tuition and fees paid, and the amount of certain scholarships and allowances subtracted from tuition. This credit is family-based (e.g., $1,000 per family) rather than based on the number of dependents in your family like the Hope credit.
Who Qualifies?
- The Taxpayer: An eligible taxpayer must file a tax return and owe taxes to claim the credit. The taxpayer must also claim the eligible student as a dependent unless the credit is for the taxpayer or the taxpayer's spouse. (This means the eligible taxpayer may also be the eligible student.) The taxpayer may be eligible for the maximum benefit with an Adjusted Gross Income (AGI) of up to $40,000 for a single taxpayer or $80,000 for married taxpayers. The credit amount is gradually reduced for families with incomes between $40,000 and $50,000 if single or between $80,000 and $100,000 if married. After the 2001 tax year, the income limits will be adjusted for inflation. See the 2002 IRS Form 8863 for the revised AGI limits.
- The Student: An eligible student may be enrolled in an eligible program leading to an undergraduate or graduate degree at an eligible school during the calendar year OR may be enrolled level in any course of instruction at an eligible school to acquire/improve the student's job skills during the calendar year. You may claim the credit yourself if you are not claimed as a dependent by another taxpayer. (Once again, this means that the eligible student may also be the eligible taxpayer.)
How Do You Get It?
To apply for the credit, the taxpayer must report the amount of tuition and fees paid as well as the amount of certain scholarships, grants, and untaxed income used to pay the tuition and fees. The law specifies that schools will send this information in the form of a statement to individual taxpayers and to the IRS. For the 2002 tax year, this statement will include: 1) the name, address, and taxpayer ID number of the school; 2) the name, address, and taxpayer ID of the student for whom tuition was paid; 3) whether the student was enrolled at least half-time; and 4) whether the student was enrolled only in a graduate-level program. Your school will mail this to you by January 31, 2003 for the 2002 tax year. This statement from the school will also include the phone number of a person you can call at the school if you have questions. You will use this information and your own records about tuition and fee amounts you paid to fill out the IRS Form 8863 to claim the tax credit. You may wish to talk to a tax advisor for help in calculating the amount of your credit.
When Is It Available?
The taxpayer may claim the Lifetime Learning credit for qualified expenses paid in tax years beginning July 1, 1998, and after.
Can A Family Claim Multiple Benefits?
A family may claim a Lifetime Learning credit, a Hope credit, and an exclusion from gross income for certain distributions from qualified State tuition programs or education IRAs as long as the same student isn't used as the basis for each credit or exclusion AND the family doesn't exceed the Lifetime Learning maximum per family.
Revised February 27, 2002, NASFAA Web Site www.nasfaa.org Copyright 2002, National Association of Student Financial Aid administrators Permission to reprint, distribute, and/or post on web sites is granted to NASFAA Members
