Education Tax Credits Available in 2011 by Karla Hopkins

The Federal form 1098-T is used to provide college students and their parents with information for claiming education benefits on their tax return. The form may include the amount of payments received OR the amount billed to the student. Remember though, the education credits are only for the amounts PAID during the year not the amount that was billed to you and remains unpaid at the end of the year. Your financial records such as canceled checks or credit card receipts are the official supporting documentation for calculating your education credit.

There are currently two education credits. The first is called the American Opportunity Tax Credit. The value of the credit is the first $2,000 plus 25% of the next $2,000 (maximum value $2,500) paid for each student for qualified expenses. To claim this credit the student must be in the first four years of post secondary eligible institution. They must be at least a half time student, and be enrolled in a program that leads to a degree or certificate. Qualified expenses include tuition, course materials, supplies and equipment. Qualified expenses DO NOT include room and board or athletic fees.

The second credit is called the Lifetime Learning Credit. The maximum lifetime learning credit is $2,000. Unlike the American Opportunity Tax Credit, this credit is available to students enrolled in one or more courses leading to an undergraduate, graduate or certification credential or if the course is to acquire or improve job skills.

In both cases, tuition and education expenses paid for with education or other types of loans are eligible for the tax credit.

One area of the educating tax credit laws that often reduces or eliminates the benefit of the education credit is when a divorced or separated couple shares the dependency deduction of the student on a year by year basis. One of the requirements for the credit is that it is allowed for a taxpayer, spouse or a DEPENDENT claimed on a tax return. Many times, a divorce decree controls the dependency deduction between couples without considering the implications to the benefit of education credits. Generally, the tax credit is most beneficial to the individual in the highest income tax rate. When a couple is electing to file a "married filing separate" return, NO credit is available on either return. Given the high costs of education today, it is important to consider the education tax credits in your tax planning and tax filing elections.