Guide to doing your taxes yourself

IRS Form 8863: Credit for Education Expenses

IRS Form 8863: Credit for Education Expenses

If you paid for college or continuing education courses then you may be eligible for a  tax credit.  IRS Form 8863 offers taxpayers who took qualifying courses a discount on their tax bill, which could also take the form of a higher IRS refund.  How does this work?

 What are Education Credits?

If you paid for classes at a higher learning institution (offering courses for people who already have a high school diploma) then the IRS will reduce your tax bill.  After figuring your income tax for the year, credits actually work to subtract money from the tax you owe.  Like a coupon.  In this way, tax credits are better than tax deductions because they result in more savings for you, the taxpayer.  Deductions reduce your taxable income.  A $2000 tax deduction may be worth around $20 off your tax bill.  But a $2000 tax credit is worth face value: $2000.

What Classes Qualify on IRS form 8863?

For the education tax credit, claimed on IRS 8863, the classes you took must be from a real college or educational institution.  The credit covers tuition, enrollment fees, and in some cases, supplies.  The classes must be taken for credit.

Do I Have to Be Enrolled in a Degree-Seeking Program?

That depends.  There are actually two types of education tax credits:

  1. The American Opportunity Tax Credit. For this one, yes you have to be enrolled in a degree seeking program.  You can get this credit for four years of college and then that’s the end of the credit for you.
  2. The LifeTime Learning Tax Credit.  For this one, no you don’t have to be getting a degree.  This one is for career education and learning throughout your lifetime (if you couldn’t tell from the name).

Who Qualifies for the Education Tax Credits

Anyone who pays tuition and fees for a college course for him or herself, a spouse, or a dependent.  If you claim your college student son on your federal tax return and pay his tuition, then you qualify for the American Opportunity Tax Credit, provided all other qualifications have been met.

The only thing that automatically disqualifies you from the American Opportunity credit is having a drug felony in your past.  But that doesn’t disqualify you from the other type of education tax credit: the lifetime learning credit.

How Much Are These Tax Credits Worth?

The American Opportunity credit is worth up to $2,500 per student.  If you are paying tuition for you and your son for getting a Bachelor’s degree, then you might qualify for a $5000 tax credit.  That’s $5000 in you pocket.

The Lifetime Learning credit is worth up to $2000 per tax return.  For the same father and son example, it’s only worth $2000 at most in your pocket.

Do I Get Credit For My Laptop?

What are qualifying expenses?  Your laptop is covered for the American Opportunity credit and also for the other credit if it’s required and paid for through the college (bought from the college).  Same for other supplies and equipment.