When you’re paying your own tuition, every penny counts. In certain circumstances, you can still get a tax credit refunded to you if you’re in college and unemployed. But if you’ve already completed your bachelor’s degree, you’re out of luck. In addition, you can’t be claimed as a dependent on someone else’s return to claim any of the education tax benefits.
American Opportunity Credit
The American Opportunity Tax credit offers a tax credit of up to $2,500: 100 percent of your first $2,000 of educational expenses, and 25 percent of your next $2,000. You qualify for the maximum credit if you have $4,000 or more in qualified educational expenses. However, only 40 percent of the credit is refundable, which means that the most you can get back from the credit is $1,000 if you have no income tax liability.
American Opportunity Credit Eligibility
You can only claim education expenses you pay to complete your first four years in post-secondary education. In addition, your modified adjusted gross income has to fall below the annual limits. If you’re eligible, you can include the cost of tuition, fees, supplies and equipment. Room and board isn’t covered. Also, you have to reduce your qualified expenses by any tax-free assistance you get, such as scholarships. For example, if you have $5,000 in expenses but you earn a $2,000 scholarship, you can only use $3,000 of expenses when figuring your American Opportunity credit.
Lifetime Learning Credit
The Lifetime Learning Credit offers a maximum credit of $2,000, or 20 percent of your first $10,000 of qualified educational expenses. However, this is a nonrefundable credit, which means that if you’re unemployed and don’t owe any other taxes, the lifetime learning credit won’t do you any good. As a result, if you’re a grad student and unemployed, you won’t be able to take advantage of a tax credit if you don’t have any tax liability.
Tuition and Fees Deduction
The tuition and fees deduction lets you write off up to $4,000 of qualified expenses, but that only decreases your taxable income for the year, and it can’t go below zero. Therefore, if you haven’t made any money because you’re unemployed, the deduction won’t help.
Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."