A tax credit is a reduction in the income tax that you owe. If you would owe $500 for federal taxes and receive a $500 tax credit, then your tax owed would be zero.
Both tax credits have three eligibility rules:
1. You, your dependent or a third party pays qualified educational expenses for higher education. Qualified expenses are amounts paid for tuition, fees and other related expense required for enrollment at an eligible educational institution.
2. An eligible student must be enrolled at an eligible educational institution. This would be any college, university, trade school, or post-secondary institution that is eligible to participate in the federal student aid program through the US Department of Education.
3. The eligible student is yourself, your spouse or a dependent you list on your tax return.
A student who is claimed on the parent tax return as a dependent cannot claim the tax credit, but the parent of the student can claim it on the parent tax return.
These tax credits are claimed through IRS Form 8863 and Schedule 3 of the US Individual Tax Return 1040. Consult your tax professional for help in filing for these credits. To learn more about these two tax credits visit the IRS website: https://www.irs.gov/credits-deductions/individuals/education-credits-aotc-llc
These tax credits help defray college costs so do not miss out! Also, when your 2020 tax return is finished, put the tax return and W-2 forms in your FAFSA folder ready to go to file the 2022-23 FAFSA, if needed, on or after October 1, 2021!
Steve - Southwest Iowa Advisor
