A slew of tax benefits are available if you're putting your children through school. Some states offer benefits for parents paying for parochial-school tuition and supplies for children in kindergarten through high school.
"But everything in a federal return is just for college (or other post-secondary education)," said Jo Ann Schoen of Rochester, Minnesota, treasurer for the National Association of Tax Professionals.
As with child care, federal education benefits come in the forms of credits and deductions. These benefits do not overlap, however, so you must know which ones you are eligible for and which to claim.
The American Opportunity Credit is available through 2017. It allows for a credit of up to $2,500 for tuition and related expenses for each of the first four years attending college at least half-time. Individuals who earn no more than $80,000 and couples earning no more than $160,000 are eligible for the full American Opportunity Credit, which basically expands on and replaces the Hope Credit. The credit phases out over the next $10,000 ($20,000 married filing jointly) of income.
The Hope Credit had lower income limits, a maximum credit of $1,800, did not cover books and other supplies, and was good only for the first two years of college. These rules are likely to go back into place if the American Opportunity Credit expires at the end of 2017.
The Lifetime Learning Credit has lower income limits and applies to students in non-degree and career skills training programs. Eligibility for the Lifetime Learning Credit is capped at $61,000 for single filers and $122,000 for couples filing jointly. The maximum benefit is $2,000. Also, the Lifetime Learning Credit is available on a per-household basis. The American Opportunity Credit is available on a per-student basis.
There are other key differences to consider when choosing between the American Opportunity Credit and the Lifetime Learning Credit. The Lifetime Learning Credit doesn’t take into account felony drug convictions, is available year after year, and requires enrollment in only one course. The first 40 percent (up to $1,000) of the American Opportunity Credit is refundable, which means you can receive that amount even if your tax is zero.
"They split it out when you actually go through the tax form," Steponkus said. When you use TurboTax to prepare your taxes, we’ll recommend the credit that gives you the best tax outcome.
If you don’t claim either of the education tax credits, you still have the option to deduct up to $4,000 of tuition and fees. The income limits for the tuition and fees deduction are $80,000 for single taxpayers and $160,000 for married couples filing jointly.