What Is the Lifetime Learning Credit?

The lifetime learning credit (LLC) is a provision of the U.S. federal income tax code that lets parents and students lower their tax liability by up to $2,000 to help offset higher education expenses.

The amount of the credit is 20% of the first $10,000 of qualified education expenses, or a maximum of $2,000 per tax return. The LLC is not refundable. So, you can use the credit to pay any taxes you owe, but you won’t receive any of the credit back as a refund.

This credit may be claimed year after year, without a limit. However, it cannot be combined with the American Opportunity Tax Credit in the same tax year.

Key Takeaways

  • The Lifetime Learning Credit (LLC) is for qualified tuition and education-related expenses paid for by 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. It is worth up to $2,000 per tax return.

How the Lifetime Learning Credit Works

The Lifetime Learning Credit may be claimed when a student is enrolled in undergraduate, graduate, or professional degree courses. The credit may also be used for courses in specific career-related skills.

In order to be eligible for the LLC, a student must be enrolled at an institution that is considered eligible by the IRS. They must be taking higher education courses towards a degree or a recognized educational credential that provides or improves job skills.

What Makes an Eligible Educational Institution

An eligible educational institution is a school offering education beyond high school. It is any college, university, trade school, or other post-secondary educational institution eligible to participate in a student aid program run by the U.S. Department of Education.

Finally, they must be enrolled at a qualifying institution for at least one academic period that began within the tax year for which they’re claiming the credit. The IRS defines “academic period” as a semester, trimester, quarter, summer session, or other period determined by the school.

The IRS also publishes an interactive mobile application–Am I Eligible to Claim an Education Credit?– that students can use to find out if they are eligible to claim an education credit.

Income Limitations for the LLC

In order to claim the full credit, a taxpayer’s modified adjusted gross income (MAGI) for the tax year 2019 must be between $58,000 and $68,000 if they file as an individual. For taxpayers filing jointly, income must be between $116,000 and $136,000.

Taxpayers filing individually whose MAGI is below $66,000, but above $56,000, can receive a reduced amount of the credit. If filing jointly, taxpayers with MAGI of between $112,000 and $136,000 receive the reduced credit. Taxpayers with MAGI of over $68,000, or $136,000 for joint filers, cannot claim the credit at all.

How to Claim the LLC

To be eligible to claim the AOTC or LLC, the law requires a taxpayer or their dependent to get Form 1098-T, Tuition Statement, from an eligible educational institution.

This statement helps you determine what your credit will be. The form will have an amount in Box 1 to show the amounts received during the year. But this amount may not be the amount you can claim. To research qualified education expenses, see the IRS factsheet Qualified Education Expenses for more information on what amount to claim.

Check the Form 1098-T to make sure it is correct. If it isn't correct or you do not receive the form, contact your school.

To claim the LLC, you must complete the Form 8863. Attach the completed form to your Form 1040 or Form 1040-SR.

Other Tax Credits Related to Education Expenses

The U.S. government subsidizes individuals' higher education expenses through a number of tax credits, tax deductions, and tax-advantaged savings plans. Each of these programs lowers income tax liability for students or their parents. The subsidies include the Lifetime Learning Credit, the American Opportunity Tax Credit, the tuition and fees deduction, and 529 savings plans.

The American Opportunity Tax Credit (AOTC) is a credit that is specifically for education expenses during the first four years of a student’s higher education. The AOTC offers a maximum annual credit of $2,500 per eligible student. If the credit brings the amount of tax you owe to zero, you can have 40 percent of any remaining amount of the credit (up to $1,000) refunded to you.

The tuition and fees deduction simply allows taxpayers to deduct up to $4,000 from their taxable income in eligible higher education expenses when filing their taxes. 529 savings plans help people to save money for future tuition through a tax-advantaged savings plan.