- The American Rescue Plan Act and the Education Tax Credit
- How to Claim the Education Tax Credit
- What Expenses Qualify for the Education Tax Credit?
The Education Tax Credit for 2021 is a tax credit for eligible expenses incurred for the purpose of attending an eligible post-secondary institution.
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The American Rescue Plan Act and the Education Tax Credit
The American Rescue Plan Act (ARPA) of 2021, enacted March 11, 2021, establishes the Education Tax Credit to provide up to $1,400 per eligible student to help offset the cost of tuition and other related expenses incurred during the 2021-2022 academic year. This tax credit is refundable, meaning that if the credit exceeds the tax liability of the taxpayer, the taxpayer will receive the remainder of the credit as a refund. The credit is available to eligible taxpayers who file a joint return, and the credit is also available to eligible taxpayers who are not married and do not file a joint return.
What is the American Rescue Plan Act?
The American Rescue Plan Act of 2021 (ARP) is a $1.9 trillion economic stimulus package proposed by U.S. President Joe Biden in response to the COVID-19 pandemic in the United States. If passed by the U.S. Congress, it would provide $1,400 direct payments to most Americans, as well as enhanced unemployment benefits and funding for vaccine distribution, among other measures. The bill was introduced in the House of Representatives onJanuary 15, 2021, and is currently being considered by the United States Senate.
What is the Education Tax Credit?
The American Rescue Plan Act of 2021 includes a new, fully refundable education tax credit of up to $3,600 per eligible student. This credit is available for two- and four-year colleges and may be used for expenses including tuition, fees, books, and supplies. The credit is capped at $1,400 per student per year for two-year colleges and $3,000 per student per year for four-year colleges. For example, a family with two eligible students attending a four-year college could receive up to $7,200 in education tax credits ($3,600 per student).
The credit is available for taxable years 2020 and 2021. Additionally, the act allows taxpayers to carry forward any unused portion of the credit to future years. To claim the credit, taxpayers must file a Form 1040 or Form 1040-SR (Individual Income Tax Return) for the relevant taxable year. The education tax credit is not available to taxpayers who are claimed as dependents on another taxpayer’s return.
How to Claim the Education Tax Credit
The Education Tax Credit is available to eligible taxpayers who have paid eligible tuition fees for themselves, their spouse, or their common-law partner. The credit can be claimed for courses taken at an eligible educational institution. The credit can be claimed for courses that lasted at least three weeks and were taken to get or improve skills in an occupation.
Who is eligible for the Education Tax Credit?
There are two education tax credits available to taxpayers: the American Opportunity Tax Credit and the Lifetime Learning Credit. The credit you claim depends on your situation.
The American Opportunity Tax Credit is equal to 100% of the first $2,000 of qualifying expenses and 25% of the next $2,000, for a maximum possible credit of $2,500 per eligible student. To be eligible, the student must be enrolled at least half-time in a program leading to a degree or other recognized credential at an eligible educational institution. The credit is only available for the first four years of post-secondary education.
The Lifetime Learning Credit is equal to 20% of the first $10,000 of qualifying expenses, for a maximum possible credit of $2,000 per tax return. There is no limit on the number of years you can claim this credit.
To be eligible for either credit, you must have paid qualifying expenses for yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. You cannot claim both credits for the same student in the same year.
How do I claim the Education Tax Credit?
You have to file your taxes to claim the education tax credit. The IRS Form 8863 is used to claim the credit. You will need information from your 1098-T ( tuition statement) in order to fill out the form. The 1098-T will show how much tuition and related expenses you paid during the year.
What Expenses Qualify for the Education Tax Credit?
The American Opportunity Tax Credit is a tax credit worth up to $2,500 per eligible student that helps pay for college. The credit is available for the first four years of undergraduate or post-secondary education. You can claim the credit if you, your spouse, or your dependent has qualifying expenses for tuition, books, and other course materials.
Qualified expenses for the Education Tax Credit
To claim the education tax credit, taxpayers must pay qualified expenses for themselves, their spouses or their dependent children. Qualified expenses include:
-Tuition and fees required for enrollment or attendance at an eligible educational institution
-Expenses for course-related books, supplies and equipment
The education tax credit is not available for room and board, transportation or other personal living expenses.
Other education-related tax benefits
Other education-related tax benefits available for 2021 include:
-The American Opportunity Tax Credit, which provides up to $2,500 per eligible student for the first four years of post-secondary education.
-The Lifetime Learning Credit, which provides up to $2,000 per tax return for costs associated with post-secondary education or job-related courses.
-The Teacher Education Assistance for Higher Education (TEACH) Grant Program, which provides up to $4,000 per year in grant money to students who agree to teach in a high-needs field for at least four years.