Education Tax Credits

Two tax credit programs exist for students and their families who are paying for college. It is important to note that a tax credit is deducted from the amount of taxes owed by a taxpayer; it is not deducted from taxable income like a tax deduction. A family must file a federal tax return and owe taxes to receive credit.

HOPE Scholarship Tax Credit

The HOPE Scholarship is a tax credit, not a scholarship. A family may claim a tax credit up to $1,800 for each eligible dependent for up to two tax years (100% of the first $1,200 and 50% of the second $1,200 paid for qualified expenses). However, you cannot claim a credit if you're modified adjusted gross income is $58,000 or more ($116,000 or more if you file a joint return).

You may claim this for two years so long as you:

  • Are a freshman or sophomore
  • Are at least a part-time student for one full academic year
  • Are enrolled in a certificate or degree program by a recognized institution
  • Are not convicted of any felony for a controlled substance

In order to receive this credit, you must file using a 1040 or 1040A and attach Form 8863.

American Opportunity Credit

Available for tax years 2009-2010, The American Opportunity Credit modifies the existing Hope credit, making it available to a broader range of taxpayers. The maximum annual credit is $2,500 per student and is available to individuals whose modified adjusted gross income does not exceed $80,000 ($160,000 for married couples filing a joint return).

The American Opportunity Credit modifies the existing Hope credit by:

  • Adding required course materials to the list of qualifying expenses.
  • Allowing the credit to be claimed for four post-secondary education years instead of two.

For students attending college in a Midwestern disaster area, special provisions apply. Consult IRS Publication 970, Tax Benefits for Education, for more details.

Lifetime Learning Tax Credit

The Lifetime Learning Tax Credit is a tax credit of 20% of the first $10,000 you paid for qualified tuition and related expenses for yourself, your spouse, or your dependent for whom you claim an exemption. The maximum amount of credit you can claim for 2004 is $2,000 (20% of $10,000) for all students in the family.

The lifetime learning credit differs from the HOPE credit in that it:

  • Is available if you are taking one course or more
  • Is not limited to only freshmen and sophomores
  • Can be used for graduate programs
  • Has no limit on the numbers of years it can be claimed

In order to receive this credit, you must file using a 1040 or 1040A and attach Form 8863.

Note: If you claim the Hope credit for a student, then you are not eligible to claim the Lifelong Learning credit for the same student.

To obtain the most detailed and current information regarding these credits, view the IRS' Education Credits page.