This is a tax credit you can qualify for if you are paying for qualified education expenses for higher education. "The credit itself is capped at $2,500, and 40% of whatever you claim could be refundable," says Hoffman. "Refundable means that if your tax liability is $0 you can get money back from the IRS." But because it is refundable, there are several qualifications you must meet to claim the credit. They include:
- Only the first four years of your dependent's college education.
- The student has to at least be enrolled half-time. The educational institution should send you a 1098-T that states the amount of qualified tuition that you've paid during the year.
- Qualified expenses include tuition (as stated on the 1098-T), books, supplies, or equipment purchased for schooling.
- Scholarships reduce the amount of qualified expenses that you're allowed to claim.
In addition, the credit begins to phase out if your modified adjusted gross income (MAGI) is at least $80,000 ($160,000 for married filing joint), and you can't claim the credit if your MAGI is more than $90,000 ($180,000 for married filing jointly). This means that you will begin to have a reduced benefit. If you file as married filing separately, you aren't allowed to claim this credit at all, Hoffman explains.