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Lifetime Learning Tax Credit

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Mark Kantrowitz

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The Lifetime Learning provides a federal income tax credit of up to $2,000 per taxpayer based on the first $10,000 in postsecondary tuition and fees paid by the taxpayer during the tax year. The Lifetime learning tax credit is 20% of the first $10,000. The tax credit may be received for an unlimited number of years.

Amount of Credit

The Lifetime Learning Tax Credit provides a tax credit of up to $2,000 per taxpayer for education expenses. The amount of the credit is equal to 20% of the first $10,000 of qualified tuition and related expenses paid by the taxpayer. (In 2006 the maximum lifetime learning tax credit was increased to $4,000 and 40% for Gulf Opportunity Zone Students.)

Note that the Lifetime Learning credit does not vary according to the number of students. This is in contrast with the Hope Scholarship, which is based on the number of eligible students in the household. This means that if you have multiple children in school at the same time and your tuition bills total more than $10,000, you only get the credit for the first $10,000 paid. You don’t get another credit for each additional child. The credit is relative to the total amount of tuition paid, irrespective of the number of children in school.

Section 702 of the Emergency Economic Stabilization Act of 2008 (PL 110-343) made students attending undergraduate or graduate institutions in the Midwestern disaster area eligible for the higher Gulf Opportunity Zone limits for the Hope Scholarship and Lifetime Learning Tax Credit in tax years 2008 and 2009.

Qualified Higher Education Expenses

Qualified tuition and related expenses includes expenses for any course of instruction at an eligible educational institution to acquire or improve job skills. This means that the credit may be used for part-time study, not just students enrolled at least half-time in a degree program.

Qualified higher education expenses include tuition and fees. Nonacademic fees such as student activity fees, athletic fees and insurance are excluded. The expenses must be related to the student’s academic course of instruction. Expenses related to sports, games or hobbies are excluded unless they are part of the student’s degree program.

The expenses must have been paid by the taxpayer or by the student, and the taxpayer must list the student as an exemption on their income tax return. (Any qualified tuition and related expenses paid by the dependent are treated as though they were paid by the taxpayer, per 26 CFR 25A(g)(3).)

Taxpayers who are married cannot claim the tax credit if they are filing separate returns.

Scholarships and financial aid do not count as qualified tuition and related expenses paid by the taxpayer. Only out-of-pocket expenses count. Gifts, bequests and inheritances do count as though paid by the taxpayer.

The credit applies to expenses paid after June 30, 1998.