What is the Lifetime Learning Credit (LLC) ?
Many taxpayers wonder how they can cover some of their school expenses with the rising cost of higher education, so one option is to claim for the Lifetime Learning Credit.
The Lifetime Learning Credit (LLC) is a federal income tax credit for the expenses of qualified post-secondary schools and qualified tuition. Scholarships are available on a per-taxpayer basis for eligible tuition and expenses of the taxpayer, the taxpayer's spouse, and eligible dependents listed as exempt on the taxpayer's federal income tax return. This credit can help pay for professional degree courses, undergraduate and graduate, which include courses to improve or gain job skills.
LLCs help reduce the tax bill for people who have qualifying education expenses for themselves, dependents or their spouse. Qualifying expenses include textbooks, student fees, equipment and necessary educational supplies. If you qualify for an LLC, you can deduct the amount of the credit from the total tax bill. The maximum Lifetime Learning Credit is $2,000 per tax year.
LLCs are a provision of the US Federal Income Tax Code to help parents and students offset higher education expenses but the Lifetime Learning Credit is non-refundable. You can use the LLC to pay your taxes, but according to the Internal Revenue Service (IRS), you don't get a refund of any credits. This credit can be claimed year after year, without any limit, but this credit cannot be clubbed with AOTC in the same tax year.
The LLC is equal to 20% of the first $10,000 in education expenses paid per year, with a maximum credit of up to $2,000. You cannot claim the credit for each student, there is a $10,000 collective cap. There is no limit to the number of years for which you can claim the credit.
How the Lifetime Learning Credit Works ?
The Lifetime Learning Credit is an annual tax credit that can be claimed for post-secondary education expenses for required tuition, books, fees, equipment, supplies, or courses that help you gain job skills. Students enrolled in undergraduate, graduate or professional degree courses can claim the Lifetime Learning Tax Credit, and this credit can also be claimed for courses in specific career-related skills.
A student must be enrolled in an educational institution deemed eligible by the IRS to be eligible for this credit. The student must be enrolled in a qualifying institution for an academic period that began within the tax year for which they are claiming the LLC. LLCs can be claimed in an unlimited number of tax years, but the credit is limited to one tax credit per taxpayer per year. The $10,000 limit includes the total amount of education expenses incurred for the tax year by the taxpayer, their dependent children and their spouse. A student does not need to be pursuing a certificate or degree program for post-secondary education expenses to qualify for this credit.
Key Facts of Lifetime Learning Tax Credit
- LLC is for qualified education-related expenses paid for by qualified students enrolled in an eligible educational institution.
- This credit is limited to $2,000 per tax return.
- There is no limit on the number of years for which you can claim this credit.
- Taxpayers with a MAGI of more than $69,000 or $138,000 for joint filers cannot claim the LLTC.
- This tax credit can be claimed once per year per taxpayer.
Who is Eligible for Lifetime Learning Credit ?
Taxpayers who meet the following requirements are eligible to claim the Lifetime Learning Tax Credit :
- You, a third party, or your dependents pay qualified education expenses for higher education.
- The taxpayer, their spouse or dependent child pays education expenses for an eligible student enrolled in an eligible educational institution.
- The eligible student is yourself, a dependent, or your spouse who is listed on your tax return.
- Taxpayer not listed as dependent on another person's tax return.
Who Cannot Claim for Lifetime Learning Credit ?
LLC is not available to you when :
- The taxpayer claimed the American opportunity tax credit during the same tax year.
- The taxpayer pays education expenses for someone who is not a dependent.
- Taxpayer files income tax return as married filing separately.
- The taxpayer was a non-resident foreigner who is not treated as a resident alien for tax purposes.
Eligible Educational Institutions
All accredited vocational schools, universities, colleges and other post-secondary institutions qualify as qualified educational institutions with the LLC. If the educational institution is eligible to participate in federal student aid programs through the U.S. Department of Education, you can use tuition paid to the school to claim the Lifetime Learning Tax Credit.
Qualified Expenses
Qualifying expenses include student body fees, the amount paid for tuition, and any required fees such as registration fees. You must deduct your expenses by the amount of any financial aid you receive from scholarships, grants or reimbursements. Still, if you pay college tuition using borrowed funds, you don't need to deduct them. This borrowing includes gifts or student loans from family members.
Other qualified expenses include :
- Fees for essential supplies, textbooks and equipment, when paid to the eligible institution.
- Purchased expenses with student loan proceeds.
- Expenses which were not refunded on withdrawal by a student from an eligible institution.
- Expenses payable in the current tax year for the academic period beginning within three months of the next tax year.
- Form 1098-T will provide a list of eligible tuition and related expenses, which can be used to justify the LLTC, including any prepaid expenses for the upcoming academic period.
What are the Income Limits for Lifetime Learning Credit ?
The amount of Lifetime Learning Credit that you can claim starts ending at the Fixed Income Limit. Your tax credit amount is not reduced if your modified adjusted gross income is less than the phased out limit, but it will be reduced if your income is higher.
To claim the credit for tax year 2023, a taxpayer must have a modified adjusted gross income (MAGI) of $80,000 or less if they file as an individual. Taxpayers must have an income of $160,000 or less if filing jointly.
If your MAGI is more than $80,000 but less than $90,000, (more than $160,000 but less than $180,000 for married taxpayers filing jointly), your credit is reduced. If your MAGI is more than $90,000 (180,000 for married taxpayers filing jointly), you cannot claim the credit.
The credit has been phased out for taxpayers who have modified adjusted gross income in excess of those amounts and who are phased out can't claim the $2,000 credit at all. According to the IRS, the MAGI amount used by joint filers to determine the reduction in LLCs was not adjusted for inflation for taxable years beginning after December 31, 2020.
How Much is Lifetime Learning Credit Worth ?
The credit amount is 20% of the first $10,000 of eligible education expenses, or a maximum of $2,000 per return. LLC is not refundable. Therefore, you can use the credit to pay any taxes, but you will not get any credit back as a refund.
How to Calculate the Lifetime Learning Credit Amount ?
To calculate the amount of the Lifetime Learning Tax Credit, enter the applicable student name, eligible expenses, and Social Security number. Enter your actual expenses or $10,000, whichever is less, then multiply this number by 20%. That amount is your potential LLC. From there, go to Part IV of the form.
How to Claim the Lifetime Learning Credit ?
To be eligible to claim an LLC, the law requires a taxpayer to obtain a Form 1098-T or Tuition Statement from an eligible educational institution. This statement helps you determine what the credit will be. The form will contain the amount in box 1 to reflect the amount received during the year. To research qualified education expenses, see the IRS fact sheet Qualified Education Expenses. Check Form 1098-T to make sure it is correct. If the form is not correct or you do not receive the form, contact your school.
To claim Lifetime Learning Credit, you must complete Form 8863 and attach the completed form to your Form 1040 or Form 1040-SR. Completing Parts III and IV of Form 8863 will help you find out how much credit amount you can claim. Transfer the credit amount to your income tax return. The taxpayer must have an Individual Taxpayer Identification Number or a Social Security Number.
Lifetime Learning Credit FAQ's
How many times can I claim LCC ?
There is no limit to the number of times you can claim the Lifetime Learning Credit in your lifetime. You can claim it every tax year, if you are eligible.
Can parents claim the Lifetime Learning Tax Credit ?
Yes. Parents can claim LCC on behalf of the dependent child. However, you don't get the credit for each child, so even if you have three children, you still get the maximum credit amount per tax return of $2,000.
When Does an LLC Expire ?
The Lifetime Learning Credit does not expire. You can use this credit annually.
How does a taxpayer claim the Lifetime Learning Credit ?
To claim an LLC, a taxpayer must file IRS Form 8863 with his federal income tax return.
Do You Need a 1098-T for an LLC ?
In general, a student must obtain Form 1098-T to claim education credits.