What is the Lifetime Learning Credit?
The Lifetime Learning Credit, also known as the Hope Scholarship tax credit, is a tax credit given for higher educational pursuits in the United States. However, it is not a scholarship in the truest sense of the word. Rather, it is an educational tax incentive offered by the federal government to encourage adults to at least undertake some amount of college coursework.
Some may be confused between credits, such as the Lifetime Learning Credit, and a deduction. This is often a source of great uncertainty when discussing tax policy. Simply put, a credit is a reduction in the amount you owe. A deduction reduces the amount of taxable income that must be reported. Generally, credits are more valuable than deductions.
The Lifetime Learning Credit can be claimed up to two tax years. It is worth more the first year than the second year. For expenses up to $1,100 US Dollars (USD), the lifetime learning credit can be used for all of that the first year it is claimed. During the second, year it can be used for 50 percent of those qualifying expenses. So for those who have college expenses totaling $1,100 USD or more, the second year the tax credit could be worth, $550 USD. This amount could increase from one year to the next, but it would be rare that it would ever decrease.
Like many federal tax programs, qualifying for the Lifetime Learning Credit depends on a number of different factors. For example, a student must have completed less than two years of college coursework in order to be eligible. Income eligibility guidelines also apply. The more money one makes, the less likely they are to qualify for the Lifetime Learning Credit. For more information on income eligibility or other qualifying guidelines, contact the Internal Revenue Service or consult a tax adviser.
The Lifetime Learning Credit, because it is meant to encourage U.S. residents to make significant progress toward a degree of formal vocational training, also requires the student be enrolled a specific amount of time. Students must be enrolled at least half time for one semester during the academic year in order to qualify. However, it should be noted these are minimum requirements and students, at their option, could go for substantially more hours.
To claim the Lifetime Learning Credit, IRS Form 8863 must be filled out. This will include the amount paid for tuition and fees, as well as any other types of scholarships, grants or other non-taxable income received to help pay for education. Those needing help to fill out these forms, or who have questions, may wish to contact the financial adviser at their respective schools. These trained professionals should be able to help answer any tax questions.
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