The federal government also offers programs that give you credit for taxes paid in the same year as your child’s tuition. There are two such programs: the Hope Credit and the Lifetime Learning Credit. The Hope Credit lets you reduce your taxes by up to $1500 per student for tuition paid in each of the first two years of college. The Lifetime Learning Credit lets you reduce your taxes by up to $1000 for tuition paid, and it can be used in any year in which you don’t also take the Hope Credit. What’s more, you can use the Hope and Lifetime Learning Credit for tuition that you’ve already paid with student loans, provided that you take the credit in the year the tuition was paid (not the year the loan was paid back). Be aware that these tax credits are applied towards the total amount of taxes that is paid; they are not merely tax-deductible expenses to reduce your pre-tax income.
The amount of the Hope Credit that you can claim is based on 100% of the first $1,000 that is paid, in addition to 50% of the second $1,000 that is paid. The Hope credit can only be applied to the first two years of a child’s college education. This credit can be applied for each child that is in the first two years of college. Eligibility for the Hope Credit is based upon the parent’s federal modified adjusted gross income. If you are single, your modified adjusted gross income must not exceed $40,000 and if you are married, your joint income must not exceed $80,000. If your income exceeds these amounts but your income is below $50,000, or $100,000 if married, you may take a reduced credit. If you’re married but file your taxes separately, you may not take the Hope Credit, regardless of income.
The Lifetime Learning Credit lets you claim 20% of the first $5,000 of qualified educational expenses, up to $1,000 annually. Starting in 2003, the Lifetime Learning Credit lets you claim 20% of the first $10,000 of qualified educational expenses, up to $2,000 annually. This credit can be claimed after the child’s first two years of college since the Hope Credit can no longer be claimed at that time. The Lifetime Learning Credit can be used for any postsecondary education, including technical and graduate programs. The eligibility requirements for the LLC are identical to the requirements of the Hope Credit.