Video: What Are Education Tax Credits?

Video transcript:

Lina: Between pursuing my post-graduate degree and putting two kids through college, money’s been really tight. I wish I had more breathing room.

*ezAngel appears*

ezAngel: Hello. I'm ezAngel and I’m here to help you. Have you filed your federal tax return yet?

Lina: Not yet. I’m worried that I’ll owe the IRS this year.

ezAngel: Don’t worry, you may qualify for educational tax credits. What is your filing status?

Lina: I file jointly with my husband using ezTaxReturn.

ezAngel: Great. You may qualify for the Lifetime Learning Credit which is worth up to $2,000 per tax return. It’s for people taking undergraduate, graduate, and professional degree courses including classes to improve job skills. However, this credit is non-refundable.

Lina: What is a non-refundable credit?

ezAngel: A non-refundable tax credit will reduce your tax liability, but not create a refund. Therefore, the credit is limited to the amount that you owe.

Lina: Well, that sounds good because I cannot pay more taxes and any credit that can reduce my tax bill will be helpful - given our present situation. What about my kids, Joe and Lily? They’re in college but only Lily has a scholarship, she’s the bright one.

ezAngel: Does the scholarship cover all of Lily’s student expenses?

Lina: The scholarship helps cover some of her expenses.

ezAngel: Well, they both can claim the American Opportunity Credits for any unreimbursed qualified expenses. This includes course materials, books, supplies, and equipment if you have the receipts available. Expenses that don't count include amounts paid for insurance; medical expenses (including student health fees); room and board; transportation; or similar personal, living or family expenses.

Lina: Okay. Joe is part of the soccer and basketball team in college. Can the American Opportunity Credit help cover his extracurricular expenses?

ezAngel: Unfortunately, you cannot claim expenses for sports, games, hobbies, or any non-credit courses unless the course is part of the student's degree program.

Lina: Okay (sad tone)

ezAngel: The good news is that American Opportunity credit is worth up to $2,500 per eligible student and up to 40% is refundable. That means a portion of the credit will be refunded to you even if you don’t owe any income tax! Keep in mind that you cannot claim the Lifetime Learning Credit and American Opportunity for the same student during the same year.

Lina: Fantastic! What are the income limits for these education credits?

ezAngel: Your modified adjusted gross income must be $180,000 or less for married taxpayers filing jointly or $90,000 or less for single taxpayers.

Lina: How do I claim an education credit?

ezAngel: You should receive a Form 1098-T from your school reporting all payments they received from you for qualified tuition and related expenses during the calendar year. Simply enter the information into the ezTaxReturn program and they’ll help you claim your education credit as well as any other tax breaks you’re eligible for. So, you get your maximum refund or at least owe as little as possible.

Lina: I have my 1098-T handy and I’m ready to file. Thank you for helping me ezAngel.

ezAngel: Goodbye Lina.

Are you ready to start your return?