Every penny counts when you’re a full-time student, but that designation alone isn’t enough to ensure that you’ll get a refund when you file income taxes. Getting a large refund from the IRS involves a number of factors, at the center of which is your taxable income. In short, if you're able to take full advantage of being a full-time student, you can maximize your refund.
There are only three ways to significantly reduce the amount of tax for which you are responsible. Your taxable income is reduced by any federal taxes you paid during the tax year, as well as any credits or deductions that are applied to your return. A tax deduction reduces how much taxable income you claim on your return. A tax credit directly reduces how much tax you owe on your return. For this reason, credits are generally viewed as more advantageous than deductions.
All students, even part-time students, are eligible for IRS tax benefits. To qualify for IRS credits and deductions for college students, you must meet the IRS definition of an eligible student. The definition of who is and isn't an eligible student varies depending on which credit you are claiming.
Lifetime Learning Credit
There are two types of education credits -- the American Opportunity Credit and the Lifetime Learning Credit. The Lifetime Learning Credit is geared toward career education since it allows students to claim credits for post-secondary education and job skill improvement courses for an unlimited number of years. Also, the Lifetime Learning Credit does not require that a student be pursuing a degree program in order to be eligible for the credit. To qualify as an eligible student under the Lifetime Learning Credit, you must be enrolled in one or more eligible courses at an eligible educational institution. Taxpayers may qualify for up to $4,000 in assistance from the Lifetime Learning Credit.
You're eligible to claim education credits or deductions if you paid qualified education expenses for yourself, your spouse, or a dependent for whom you claim an exemption during the tax year. If a parent or someone else is eligible to claim you, then you are not eligible to claim yourself or your education credits or deductions. In addition, you cannot claim the credit if your filing status is married filing separately. Eligible education expenses include tuition and other related expenses required for enrollment, such as student activity fees, books, supplies, and equipment. The income limit for claiming the American Opportunity credit is $90,000 if single ($180,000 if married filing jointly). For the Lifetime Learning Credit, the income limit is $62,000 if single and $124,000 if married filing jointly.
American Opportunity Credit
To qualify a student for the American Opportunity Credit, the student must not have completed four years of post-secondary education prior to the tax year in which they are filing. For example, if your son graduated from college in 2010, you cannot claim any expenses for that year on the return you file for tax year 2012. The student must also be enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential. The student also must not have been convicted of any federal or state felony for possessing or distributing a controlled substance. Qualified students are eligible for up to $2,500 per student for the American Opportunity Credit.
Tuition and Fees Deduction
For the tuition and fees deduction, an eligible student is a student who is enrolled in one or more courses at an eligible educational institution. The tuition and fees deduction may reduce your income tax up to $4,000. You are not allowed to claim both the tuition and fees deduction as well as the credits for the same taxpayer. Also, you aren't allowed to double-dip, which means claiming the same expenses more than once.
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