Can Online Students Claim Tax Credits?

The government has implemented tax credits for college students that are pursuing their higher education at an accredited institution. These tax credits can be claimed by either the student, if the student is not a dependant of their parents, or the parents of the student, if the student is still a dependant on their tax forms. These credits can be utilized to reduce the claimant’s tax payout for the current tax year by thousands of dollars. Additionally, anyone who is attending an online college can claim these credits on their taxes, as long as the chosen online college has been accredited through one of the six regional college accrediting agencies.

Government tax guidelines can be quite puzzling, and although most people go to a tax consultant to prepare their tax forms, it is beneficial to know the credits that are available in order to ensure the highest reduction. Tax credits come and go each year, as the government elects to modify tax standards, qualifications and income limits. So, we have decided to provide you with a quick guide to some of the past tax deductions that the government has allowed for students pursuing their higher education, with the hope that they continue or reinstate these benefits for future students.

Hope Credit/American Opportunity or Lifetime Learning Credit

Although the government phased out the Hope Credit as of 2010, they initiated the American Opportunity tax credit. This is essentially a renaming and expansion of the Hope Credit that previously existed. They have also introduced the Lifetime Learning Credit for college students, which is similar to the American Opportunity Credit, but offers a different reduction amount. Income limits are imposed to qualify for these new reductions.

Credits and Eligibility

While the Hope Credit provided a maximum credit of $1,800 for each eligible student when it was available, the new American Opportunity Credit offers those who qualify a maximum credit of $2,500 and the Lifetime Learning Credit states a maximum credit of $2,000 for eligible students. The American Opportunity Credit poses income limits of $80,000 for the single filer while joint income claimants cannot exceed the $160,000 gross income level. The Lifetime Learning Credit only allows single status filers who made $58,000 or joint filers $116,000 to claim the credit.

When Can You Claim?

While eligible filers could only claim the Hope Credit during the first two years of higher education and the student had to be enrolled in the equivalent of at least half-time college credit courses, the American Opportunity Credit allows students (or parents) to claim for the first four years of postsecondary education. The Lifetime Learning Credit stretches beyond the limits that both of the previous credits allowed, permitting students (or parents) to claim during any postsecondary years, in addition to courses that are related to skills training and occupational improvement.

The Hope Credit was only allowed for two years per eligible student and the student must be working toward a complete undergraduate degree or similar academic credential. The American Opportunity Credit, on the other hand, allows up to four years of claiming for students who are working toward their undergraduate degree or academic credential, while the Lifetime Learning Credit is not limited to the amount of years that can be claimed on tax returns and can be claimed whether or not the student is working toward a full degree or academic credential. The government also stipulates that students cannot have any felony drug convictions on their record to be eligible to claim this reduction on their taxes.

Covered Expenses

The government also specifies the types of expenses that are eligible for the reduction. Regarding the Hope Credit and the Lifetime Learning Credit, the IRS states: “Student activity fees and expenses for course-related books, supplies, and equipment are included in qualified education expenses only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance”. Essentially, any fees that are imposed by the institution of higher education can be claimed with this credit.

On the other side of the spectrum, the American Opportunity Credit allows course materials and tuition as eligible expenses for a tax reduction whether or not they are purchased through the academic institution. Fortunately, for students who choose to pursue their degree online, many of the accredited online institutions include the cost of supplies and books in their tuition fees.

So, the answer is: Yes, students who want to obtain their online degree are granted the same tax credits that the students who attend brick-and-mortar colleges can claim. The only exception to this rule would be if a student were to choose a college that is not accredited by one of the regional accrediting bodies for colleges. When deciding if an online degree is feasible, it is vital to consider these tax credits and how they will help lighten the financial burden.