TAX TIP No. 56
Tax credits help with higher education costs
This table will help you decide which credit works best for you and your student.
|Comparison of education credits
|Up to $1,650 credit per eligible student. ($3,600 maximum for certain Midwestern disaster area students).
||Up to $2,000 credit per tax return. ($4,000 maximum for certain Midwestern disaster area students).
|Available only for a student's first two years of postsecondary education.
||Available for all years of postsecondary education, as well as for courses to acquire or improve job skills.
|Available only for two years per eligible student.
||Available for an unlimited number of years.
|Student must be pursuing an undergraduate degree or other recognized education credential.
||Student does not need to be pursuing a degree or other recognized education credential.
|Student must be enrolled at least half time for at least one academic period beginning during the year.
||Available for one or more courses.
|Not available if student has a felony drug conviction on his or her record.
||Felony drug conviction rule does not apply.
Limitations and coordination
To qualify for either credit,
you must pay postsecondary
tuition and fees for yourself,
your spouse or your dependent.
The credit may be claimed
by the parent or the student,
but not by both. If the student
was claimed as a dependent,
he or she cannot file for
The Hope and Lifetime Learning credits
are phased out for higher-income taxpayers. The credits
are reduced for single filers with modified adjusted
gross income between $48,000 and $58,000 and for married taxpayers earning $96,000 to $116,000.
Once you go over the income limit
for your filing status, you cannot take these credits.
Married taxpayers must file a joint return to get
these tax breaks.
You also cannot claim either credit for
a student named as a dependent on your tax return if
you already used the tuition
and fees adjustment for that same student.
However, you can claim the credits even
if you received a distribution from a Coverdell
education savings account or a qualified
tuition program. Just make sure you don't use Coverdell
or tuition account money to pay for the expenses you
use to claim an education credit.
And for each student, you can choose to
claim only one of the credits in a single tax year.
That means you cannot use the Hope credit to pay for
part of your daughter's tuition charges and then claim
the Lifetime Learning break to write off $2,000 more
of her school costs.
But if you pay college expenses for two
or more students in the same year, you can choose to
take credits on a per-student, per-year basis. That
means you can take the Hope credit for your sophomore
daughter and the Lifetime Learning one for your senior
Midwestern student aid
The rash of severe storms, flooding and tornadoes across the Midwest last spring and summer prompted the enactment of The Heartland Disaster Tax Relief Act of 2008. Part of this new law expands the educational tax credits for students in the hardest hit areas.
Students attending college in specific Midwestern disaster areas can claim a Hope credit of up to $3,600 on their 2008 returns. This larger credit applies to certain counties in Arkansas, Illinois, Indiana, Iowa, Missouri, Nebraska and Wisconsin. The specific counties in those states are listed in chapter 3 of IRS
Publication 970, Tax Benefits for Higher Education.
Learning credit rate for a
Midwestern disaster area student
is increased from 20 percent
to 40 percent. This extra
break could provide an eligible
student a credit of up to
The new law
also expands the educational
expenses that Midwestern students
can count in claiming these
credits. In addition to tuition
and fees, Midwestern disaster
area students can include
the costs of books, supplies
and equipment, as well as,
in some cases, a portion of
room and board costs.
Detailed eligibility guidelines for disaster area students as well as all others looking to claim the Hope or Lifetime Learning credits can be found in IRS
Updated: March 25, 2009