Navigating student loan repayment can be overwhelming, but there are valuable deductions available to help borrowers ease their financial burden. One such deduction is the Lifetime Learning Credit.
In this blog post, we’ll delve into what this credit is, who can benefit from it, and address some frequently asked questions.
Table of Contents
Who is this article for?
Any individual who pays for tuition or other qualified expenses for a student or knows anyone who could benefit from this information.
Note: The benefit phases out at a MAGI of $90,000.
What is a Tax Credit?
Each year the government determines how much in taxes you owe based on your income also known as the money you made. Generally, your employer withholds some of your taxes so come April when you file taxes you can confirm with the government if you paid enough or underpaid for the previous year.
When you underpay taxes, this means for a given year you did not pay the expected amount of taxes for your income bracket.
Let’s take the example below if you live in Maryland with a salary of $50,000 USD there is an expectation you will pay $4,241 throughout the year.
If you underpay and come tax season owe $1,000. A tax credit allows you to subtract that from any money you would owe. In this example, a $600 tax credit would mean I only need to now pay $400 to the government.
What is the Lifetime Learning Credit?
The lifetime learning credit (LLC) is for qualified tuition and related expenses paid for eligible students enrolled in an eligible educational institution. This credit can help pay for undergraduate, graduate, and professional degree courses — including courses to acquire or improve job skills. There is no limit on the number of years you can claim the credit. (Source: IRS)
Who is Eligible for the Credit
To be eligible for LLC, the student must:
- Be enrolled or taking courses at an eligible educational institution.
- Be taking higher education courses or courses to get a degree or other recognized education credential or to get or improve job skills.
- Be enrolled for at least one academic period beginning in the tax year.
Who is Ideal for the Lifetime Learning Credit?
- Single Fliers making under $90,000 and married filing jointly couples making under $185,000
- Someone in the early phase of their career before the deduction begins to phase out
Real-Life Example
Let’s say Meera has been in the workforce for a couple of years and she has an annual income of $77,000. She decided she would like to make a pivot to become a nurse anesthesiologist. As part of this, she begins taking part-time classes and pays $10,000 a year in tuition. She could take $2,000 (20%) of the expenses and apply them as a tax credit come tax season.
Frequently Asked Questions (FAQ)
- Q: Can I claim the deduction if I’m still in school?
- A: Yes, as long as you meet the eligibility criteria and have paid interest on qualifying student loans.
- Q: Do I need to itemize deductions to claim this deduction?
- A: No, you can claim the student loan interest deduction even if you take the standard deduction.
Wrap Up
The Lifetime Learning Credit is a valuable tax benefit that can help students save money while pursuing their education. By understanding the eligibility criteria, addressing common questions, and exploring real-life examples, students can take the first steps toward maximizing their savings and easing their financial burden. It’s essential to consult with a tax professional or financial advisor for personalized advice.
