Considering the ballooning cost of education in this country, most people could certainly use a little help from Uncle Sam on college costs. The tax code allows several methods for offsetting the cost of a student’s education. Although it is difficult to estimate exactly how much money you will be refunded as a result of claiming a college student, you should be able to make a ballpark estimate after you evaluate the factors that determine your refund amount.
Tax regulations and rates are subject to change, but as of the date of publication, you can receive an exemption in the amount of $3,800 for every dependent you are eligible to claim on your tax return. If one of your exemptions is a college student who you support, and is younger than 24 years old, you can claim that student's exemption, along with applicable deductions or credits to offset the cost of college expenses on your tax return.
Credits and Deductions
There is no predefined amount of money that you are entitled to receive for claiming a college student on your return. It all depends on the amount you are eligible to claim for paying the student’s college expenses that, along with the exemption, will offset your tax liability. Although the Hope credit is no longer available, as of 2012, there is a lifetime learning credit that provides up to $4,000 in offsets, and an American opportunity credit that provides up to $2,500 per student in assistance. A tuition and fees deduction provides a deduction of up to $4,000 for tuition and related expenses.
The lifetime learning credit is geared toward professionals, even though it pays for undergraduate, graduate, and professional degree courses. If you do not qualify for the American opportunity credit or the lifetime learning credit, then opt for the tuition and fees deduction. If possible, always opt for credits in lieu of deductions, since deductions only reduce your tax bill based upon the amount of income you are responsible for paying taxes on, whereas credits provide you with a dollar-for-dollar reduction in the tax amount. In short, a credit is a straight reduction of your taxes owed, rather than a reduction of your taxable income, making credits more advantageous.
Allowable education expenses include fees, supplies, tuition and equipment required for study. You are not allowed to claim an exemption who is eligible to be claimed by someone else, nor are you allowed to claim expenses more than once for the same year. Use form 8863 to claim your tax credits.
Denise Caldwell is a finance writer who has been writing on taxation and finance since 2006. Her articles appear regularly on websites such as Gomestic.com and MoneyNing.com. She has taken what she learned while working at the IRS to provide readers with helpful tax and finance tips. Caldwell received a Bachelor of Arts in political science from Howard University.