What Is a Tax Credit ?

A tax credit is an amount that you’re allowed to subtract from what you owe in taxes. When you pay college costs, you can subtract a certain amount from your tax bill later on. If your parents pay college expenses for you, they get the tax credit.

There are two different tuition tax credit programs. The amount of the credit varies and is subject to a number of rules, depending on which credit you use, what you use the money for, and what area of the country you live in. Your family may not claim more than one credit for the same student in any one year.

American opportunity tax credit: This credit replaces the Hope credit for 2011 and 2012. One difference is that families who owe very little tax or no tax (because their incomes are low) may be able to get some of the credit paid back to them directly. Also, the credit can be applied to course-related books and supplies, in addition to tuition and fees. The student must be in the first four years of post-secondary education and enrolled at least half-time in a program leading to an undergraduate degree or other legitimate education credential.

Lifetime learning credit: The money claimed must have been used for tuition and fees. This credit is available for undergraduate or graduate programs and for courses (even a single course) to acquire or improve job skills.