There are currently two types of federal tax credits for families to offset tuition costs. These tax credits reduce the amount of federal income tax families must pay. Families who will benefit are middle- and lower-middle-income families who do not receive enough gift aid to cover tuition payments.
The American Opportunity tax credit is valued up to $2,500 per tax year, per eligible student, for the first four years of post-secondary education. Forty percent of this credit may be refundable. The Lifetime Learning tax credit is up to $2,000 per year, per family, for an unlimited number of years. This nonrefundable credit varies according to family income, tuition costs, and amount of gift assistance received.
To be eligible, a taxpayer must file a tax return, must owe taxes and must claim the student as an exemption (self, spouse or dependent). Additionally, married filers must file jointly. Tax filers should contact their tax adviser for details. Additional information is available in Publication 970 at IRS.gov.