The Lifetime Learning Credit (LLC): What Is It?

A feature of the federal income tax legislation in the United States called the Lifetime Learning Credit (LLC) allows parents and students to reduce their tax burden by up to $2,000 to help pay for higher education. Sadly, the LLC is not refundable, so even while you can use it to pay the taxes you owe, the Internal Revenue Service (IRS) will not return any of the credit to you. There is no cap on the number of times this credit may be claimed. It must be paired with something other than the American Opportunity Tax Credit in the same tax year.

The Workings of the Lifetime Learning Credit (LLC)

Students engaged in courses leading to an undergraduate, graduate, or professional degree can claim the LLC. Courses in particular skill sets connected to careers may also be taken with credit.

A student must enroll in courses leading to a degree or other recognized educational credential that improves or offers job skills to be eligible for the credit, and they must pursue higher education at a facility that has received Internal Revenue Service approval. Lastly, to be eligible for the credit, the student must have attended a qualifying school for at least one academic semester starting during the tax year. The IRS defines an “academic period” as a semester, trimester, quarter, summer session, or any other time frame that the institution specifies.

Limitations on LLC Income

If a taxpayer files as an individual, their modified adjusted gross income (MAGI) for the tax year 2022 must be $80,000 or less to be eligible for the entire credit. The income threshold for taxpayers filing jointly is $160,000 or less. The credit is not available to individual taxpayers with a minimum adjusted gross income (MAGI) of $90,000 or to couples filing a combined return with a minimum MAGI of $180,000.

For taxpayers whose modified adjusted gross income exceeds specified thresholds, the credit is phased away, and they are not eligible to claim the $2,000 credit. The IRS asserts that joint filers’ use of the modified adjusted gross income amount to determine the decrease in the LLC for taxable years beginning after December 31, 2020, did not account for inflation.

How to Make an LLC Claim

According to the law, a taxpayer or their dependent must obtain Form 1098-T, Tuition Statement, from an approved educational school to be qualified to claim the AOTC or LLC. This statement assists you in estimating the value of your credit. The amount received during the year will be displayed in Box 1 of the form. However, you might only be able to claim part of this amount. What can be claimed depends on several qualifying education expenses other than tuition. Please verify the accuracy of the Form 1098-T by checking it. Contact your school if something needs to be corrected or you still need to receive the form. You have to fill out Form 8863 to claim the LLC. When the form is finished, please attach it to your Form 1040 or Form 1040-SR.

Additional Tax Credits for Educational Expenses

The United States government provides tax credits, tax deductions, and tax-advantaged savings schemes to individuals to subsidize their higher education costs. Each program reduces students’ or their parents’ income tax liability. The subsidies include the American Opportunity Tax Credit (AOTC), the Lifetime Learning Credit, the tuition and fee deduction, and 529 savings programs.

A credit designed to cover educational costs for the first four years of postsecondary education is known as the AOTC. For each eligible student, the AOTC grants a maximum annual credit of $2,500. You may receive a refund of 40% of the credit balance, up to $1,000, if the credit reduces the amount of tax you owe.

When filing their taxes, taxpayers can deduct up to $4,000 in qualified higher education expenses from their taxable income thanks to the tuition and fees deduction. A 529 savings plan is intended to assist individuals in setting aside funds through a tax-advantaged savings plan for future college expenses, typically for their children or grandchildren.

The Lifetime Learning Credit: What Is It Worth?

Depending on your MAGI, the LLC’s value can reach $2,000, or 20% of the first $10,000 in eligible educational expenses per tax year.

How Often Is the Lifetime Learning Credit Approved?

You can claim the LCC as many times as you like throughout your lifetime. You can claim it each tax year if you qualify.

Does the lifetime learning credit apply to parents?

Sure. A parent’s dependent child may be eligible for lifetime learning credit on their behalf. The maximum credit of $2,000 per tax return is all you may receive if you have four children, as you can only claim the credit once. You don’t receive recognition for every child.

What distinguishes the lifetime learning credit from the American Opportunity credit?

The Hope credit, now the American Opportunity credit, is only available during the first four years of college study. Undergraduate and graduate courses, specific professional programs, and trade schools may qualify for the lifetime learning credit.

The maximum value of the American Opportunity Credit is $2,500, and you may claim more than one credit if you have more than one student identified as a dependent. The lifetime learning credit is limited to a single use of up to $2,000 in value on an annual tax return.

The lifetime learning credit has an expiration date.

The LLC is perpetual. You may use it once a year for as many years as you are eligible for the credit.

The Final Word

The tax credits, tax deductions, and tax-advantaged savings plans offered by the US government are helpful resources for assisting with the escalating expense of a college education. Completing the required forms during tax season makes sense if you qualify for these incentives. For those who meet the eligibility requirements, the lifetime learning credit presents an advantageous option for financing undergraduate and graduate education, professional degree courses, and job-skill development programs.

Conclusion

• The lifetime learning credit is available to eligible students enrolled in an authorized educational institution who pay for qualified tuition and education-related expenses.
• This credit can be used to pay for undergraduate, graduate, and professional degree programs and courses to learn or improve job skills.
• There is no time limit on how many years you can claim the credit. It is valued at up to $2,000 for each tax return.
• Unlike the Lifetime Learning Credit, the American Opportunity Credit can only be used to defray the cost of undergraduate education.
• Taxpayers with a MAGI of more than $90,000, or $180,000 for joint filers, are ineligible to claim the credit.