By M Katie Helle, CPA

For some, the American dream is to earn a college education so one can have the career of their dreams.  The cost of a secondary education can be quite costly, which is why the government offers two education credits to help offset the cost.  These credits are claimed on your income tax return and reduce the amount of tax you may owe.

The two credits available are the America Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). The AOTC offers a maximum annual credit of $2,500 per eligible student on your tax return, of which up to 40 percent or $1,000 of the credit can be refunded to you.  This means that if your tax liability is less than $2,500, you can get a tax refund.  This tax credit can only be claimed in the first four years of secondary education.  The LLC offers a maximum annual credit of $2,000 with no limit on the number of years this can be claimed.  Unlike the AOTC, this credit is not refundable.

There are specific rules for each credit, but with both credits the following three criteria must be met:

  • You must have qualified education expenses for higher education.
  • You must be enrolled at an eligible educational institution.
  • The eligible student must be yourself, your spouse, or a dependent listed on your tax return.

Before claiming one of these credits, it would be advantageous to do a comparison to see which credit will provide you the most benefit.  Click here for a side by side comparison of the two credits.  At the end of the day, any help one can get with the cost of a secondary education is a win.