College students may be able to reduce the amount of income subject to income tax, they can check if they qualify for either of the following credits or deductions:
Education Credits VS. Tuition and Fees Deduction
There are two types of Education Credits:
The American Opportunity Credit
This is a $2,500 tax credit and helps pay for expenses during the first four years of college, 40% of the credit $1,000 is refundable to you even if you owe no tax. This credit is set to expire December 2017. It can be used against tuition, fees, and course materials. Income limit to take this credit is $80,000 or less for Single, $160,000 for joint filers. This credit is better of the two and should be the default choice.
The Lifetime Learning Credit
This is a $2,000 tax credit and applies to 20% of the first $10,000 of out-of-pocket expenses. This credit can be taken for undergraduate, graduate, and higher education. As long as you are taking a college class, even if it is only one class. Qualifying expenses: Tuition, registration and student body fees. It does not include: books, supplies, equipment, room and board, insurance, health fees, transportation, and living expenses. You must be responsible for paying the college tuition using your own funds or borrowed funds. The student must be your child and must be your dependent. This credit has a lower income limit.
Tuition and Fees Deduction
Up to $4,000 in eligible tuition and fees can be claimed on line 34. As with the student loan deduction, there are limits, you cannot use this deduction against expenses paid with tax-free scholarship or grants. Eligible Education Expenses: For purposes of the tuition and fees deduction, qualified education expenses are tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. 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.
You should always consider the Tuition and Fees deduction and both of the education credits and choose the one that you are eligible for and will provide the greatest benefit to you.
If you are eligible to claim the American Opportunity Credit and you are also eligible to claim the Lifetime Learning Credit for the same student in the same year, you can choose to claim either credit, but not both.