Can You Still Get Tax Credit for College if You Are Unemployed?

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.

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.

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.

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.