The Benefits of Education Nonrefundable Credits: How They Can Help You Save Money
Education is an investment in yourself and your future. As the world becomes more and more competitive, having a good education is increasingly important to secure a stable, well-paying job. However, getting a good education can be expensive, and it’s not always easy to find the money to pay for it. Fortunately, if you’re a student or you’re paying for someone’s education, you may be able to take advantage of nonrefundable education tax credits that can help you save money.
What are Nonrefundable Education Tax Credits?
Nonrefundable education tax credits are tax breaks offered by the government to help offset the cost of education. Unlike refundable tax credits, which can be used to lower your taxable income and even generate a refund if they exceed the amount of taxes you owe, nonrefundable tax credits can only be used to reduce the amount of taxes you owe. That means if you don’t owe any taxes, you can’t benefit from the credit.
The two main nonrefundable education tax credits that are available are the Lifetime Learning Credit and the American Opportunity Tax Credit. These credits are designed to help students or parents of students pay for college or other educational expenses, and can be used to lower your federal income tax liability. However, it’s important to note that you cannot claim both credits for the same student in the same year.
What is the American Opportunity Tax Credit?
The American Opportunity Tax Credit (AOTC) is a tax credit that’s available to taxpayers who pay for qualified education expenses for an eligible student. The AOTC provides up to $2,500 per year per eligible student for the first four years of college. To qualify for the credit, the student must be pursuing a degree or other recognized education credential, and must be enrolled at least half-time for at least one academic period.
There are income limits for the AOTC, so not everyone will qualify. For single filers, the credit begins to phase out at an adjusted gross income (AGI) of $80,000, and is completely phased out at an AGI of $90,000. For joint filers, the credit begins to phase out at an AGI of $160,000, and is completely phased out at an AGI of $180,000.
What is the Lifetime Learning Credit?
The Lifetime Learning Credit (LLC) is another nonrefundable education tax credit that’s available to help offset the cost of education expenses. Unlike the AOTC, the LLC provides a credit of up to $2,000 per year per tax return, and can be used for any level of higher education or job training. There is no limit on the number of years the credit can be claimed.
Like the AOTC, there are income limits for the LLC. For single filers, the credit begins to phase out at an AGI of $59,000 and is completely phased out at an AGI of $69,000. For joint filers, the credit begins to phase out at an AGI of $118,000 and is completely phased out at an AGI of $138,000.
Conclusion
If you’re a student or a parent of a student who’s paying for college or other education expenses, nonrefundable education tax credits can be a valuable tool to help you save money. The two main nonrefundable education tax credits are the American Opportunity Tax Credit and the Lifetime Learning Credit, and both are designed to help offset the cost of education expenses. While there are income limits for both tax credits, they can help reduce your federal income tax liability and make it easier to pay for education. So if you’re looking for a way to save money on education expenses, be sure to check out these two tax credits to see if you qualify.
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