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This article was fact-checked by our editors and Christina Taylor, MBA, senior manager of tax operations for Credit Karma Tax®. It has been updated for the 2019 tax year.
Taking courses to improve your skills or to secure a graduate degree is a valuable investment, but higher education doesn’t come cheap.
Annual tuition and fees for full-time graduate or doctoral studies in the 2015–2016 school year ranged from roughly $11,000 to more than $25,000, depending on the type of institution, according to research by the think tank Urban Institute and the education nonprofit AccessLex Institute.
The good news is, the lifetime learning credit could make your coursework more affordable, if you’re eligible to claim it. Depending on your income and other factors, you may receive a credit for up to 20% (max. $2,000) of the first $10,000 spent on qualifying education expenses at an eligible educational institution.
- What is the lifetime learning credit?
- Income criteria for the lifetime learning credit
- Additional criteria and limitations
- How much can the lifetime learning credit save you?
- How do I claim the lifetime learning credit?
- Did tax reform change the rules for the lifetime learning credit?
What is the lifetime learning credit?
The lifetime learning credit is one of two primary tax credits to help cover the costs of higher education. The American opportunity tax credit is the other. The big difference between the two is that the AOTC is only for students in the first four years of higher education. You can claim the LLC for an unlimited number of years so long as you qualify for it.
You can’t claim both credits for the same student, so you’ll need to decide which credit is best for your situation.
“The lifetime learning credit is a nonrefundable tax credit,” says Paul F. Russo, a CPA at tonneson + co in Massachusetts.
Nonrefundable means you can use the credit to reduce your tax bill down to zero, but won’t get money back if you owe less in taxes than the credit is worth.
You can claim this credit for your own or your spouse’s educational expenses, for expenses you paid for a qualified dependent, and for expenses paid by a qualified dependent at an eligible educational institution. The maximum allowable credit is $2,000 per tax return; however, to be eligible, the academic courses you’re paying for must meet certain requirements and your income must not be too high.
Income criteria for the lifetime learning credit
To claim the lifetime learning credit for 2019 taxes, your modified adjusted gross income must be less than $67,000 if you’re a single tax filer or less than $134,000 for married filers. You can’t claim the credit if you file taxes as married filing separately.
Only single filers with a MAGI of $58,000 or less ($116,000 or less for married filing jointly) can claim the full allowable credit. You can, however, claim a partial credit if you’re single and your income is between $58,000 and $67,000, or if your joint income for married filers is between $116,000 and $134,000.
What is MAGI?
For some, MAGI (or modified adjusted gross income) is your adjusted gross income that is modified by certain exclusions or deductions. But in most cases, MAGI is the same adjusted gross income shown on your tax return. Adjusted gross income is typically your gross income after adjustments such as personal exemptions and standard deductions.
Additional criteria and limitations
Besides meeting income limits, you must also meet all of the additional criteria below in order to claim the LLC on your own tax return.
- You’re claiming the credit for qualified education expenses you, your dependent or a third party paid at an eligible educational institution.
- You can’t be claimed as a dependent on anyone else’s tax return. Whoever claims the dependent student gets to claim the credit, if they meet other qualifications.
- The student you’re claiming the credit for (you, your spouse or your dependent) was enrolled for at least one academic period beginning in the tax year.
- The student’s coursework was toward getting a degree or recognized education credential or toward getting or improving job skills. Unlike the American opportunity tax credit, the student doesn’t need to be working toward a specific degree or credential, as long as the coursework is postsecondary and intended to get or improve job skills.
It’s also important to note that you can’t double dip.
“You can’t claim more than one education credit for the same qualifying education expenses,” Russo says.
This means you can’t claim both the American opportunity tax credit and the lifetime learning credit for the same costs paid for a single student. You can, however, claim both credits on the same return if they are for different students.
How much can the lifetime learning credit save you?
The amount you’ll save by claiming the lifetime learning credit depends on how much you actually paid for qualifying expenses, as well as a credit cap.
“Qualified education expenses are tuition, fees and course materials required for enrollment or attendance at an eligible educational institution,” Russo says.
For example, if you paid your program for textbooks or other course-related supplies or equipment, these expenses may count along with tuition in determining the amount of the credit.
By Jan. 31 each year, the school you paid expenses to should send you a tuition statement on Form 1098-T detailing your payments. However, you can’t necessarily claim the full amount from this tuition statement. You’ll need to subtract any tax-free education assistance you received. This includes tax-free scholarships and fellowships, need-based education grants like Pell Grants, and education assistance provided to veterans or provided by employers.
If your expenses add up to more than $10,000, the credit is still capped at 20% of the first $10,000 (so $2,000). The maximum credit you can claim is 20% of your eligible expenses, no matter what you actually spent. If you spent only $5,000 on school, the maximum credit you could take would be just $1,000: 20% of your $5,000 cost.
However, the $2,000 maximum is per return, not per student. So if you spent $5,000 on schooling for a qualified dependent, and another $5,000 on eligible education expenses for yourself, you would still be able to claim the maximum 20%, or $2,000, credit. If you spend less than $10,000, your credit isn’t worth as much.
How do I claim the lifetime learning credit?
To claim the lifetime learning credit, you’ll need to fill out IRS Form 8863, and input the information from your Form 1098-T into your 1040 tax return. Credit Karma Tax®, a free online tax preparation and filing service, can help you claim the LLC and calculate the amount of your credit if eligible.
Did tax reform change the rules for the lifetime learning credit?
Tax reform did not change the lifetime learning credit, so you won’t need to learn new rules to claim this credit when you do your taxes for 2018. You can still benefit from this valuable credit to help you defray the costs of advancing your education.
If you qualify for the American opportunity tax credit, you may be better off claiming that credit since it’s partially refundable and is worth up to $2,500. But if you’ve exhausted the limit on the number of times you can claim that credit or if you otherwise don’t qualify, check your eligibility for the LLC. The lifetime learning credit is a great alternative that may save you up to $2,000 on your total tax bill.
Christina Taylor is senior manager of tax operations for Credit Karma Tax®. She has more than a dozen years of experience in tax, accounting and business operations. Christina founded her own accounting consultancy and managed it for more than six years. She co-developed an online DIY tax-preparation product, serving as chief operating officer for seven years. She is the current treasurer of the National Association of Computerized Tax Processors and holds a bachelor’s in business administration/accounting from Baker College and an MBA from Meredith College. You can find her on LinkedIn.