Higher Education Tax Credits Available For Certain Taxpayers

Tax credits can help offset the cost of higher education

Whether it’s online, in-person, part-time or full-time, higher education can be expensive. The good news is there are tax credits that can help offset these costs. These credits reduce the amount of tax someone owes. If the credit reduces tax to less than zero, the taxpayer could even receive a refund.

Taxpayers who pay for higher education in 2020 can see these tax savings when they file their tax return next year. If taxpayers, their spouses or their dependents take post-high school coursework, they may be eligible for a tax benefit.

There are two credits available to help taxpayers save money on schooling, the American opportunity tax credit and the lifetime learning credit. Taxpayers use Form 8863, Education Credits, to claim the credits.

To be eligible to claim either of these credits, a taxpayer or a dependent must have received a Form 1098-T from an eligible educational institution. There are exceptions for some students.

Here are some key things taxpayers should know about each of these credits.

The American opportunity tax credit is:

• Worth a maximum benefit of up to $2,500 per eligible student.: 100% of the first $2,000 in qualified expenses; 25% of the next $2,000 of qualified expenses.

• Only for the first four years at an eligible college or vocational school.

• For students pursuing a degree or other recognized education credential.

• 40% of the credit is refundable for most taxpayers.

• The catch: The credit is phased out at modified adjusted gross income of $160K to $180K (married filing jointly) or $80K to $90K (filing single). You can’t claim the credit if you are claimed as a dependent on another person’s tax return.

The lifetime learning credit is:

• Worth a maximum benefit of up to $2,000 (20% of the first $10K of qualified expenses) per tax return, per year, no matter how many students qualify.

• Available for all years of postsecondary education and for courses to acquire or improve job skills.

• Available for an unlimited number of tax years.

• The credit is non-refundable, meaning, if you only receive the credit to the extent you owe taxes.

• The catch: The credit is phased out at modified adjusted gross income of $116K to $136K (married filing jointly) and $58K to $68K (filing single). You can’t claim the credit if you are claimed as a dependent on another person’s tax return.

More information about these and other federal tax credits at www.irs.gov/credits-deductions-for-individuals.

IRS Is Sending Interest Payments Averaging $18 to 13.9 Million Taxpayers This Week

13.9 million Americans to receive IRS tax refund interest; Taxable payments to average $18

This week the Treasury Department and the Internal Revenue Service will send interest payments to about 13.9 million individual taxpayers who timely filed their 2019 federal income tax returns and are receiving refunds.

The interest payments, averaging about $18, will be made to individual taxpayers who filed a 2019 return by this year’s July 15 deadline and either received a refund in the past three months or will receive a refund. Most interest payments will be issued separately from tax refunds.

In most cases, taxpayers who received their refund by direct deposit will have their interest payment direct deposited in the same account. About 12 million of these payments will be direct deposited.

Everyone else will receive a check. A notation on the check − saying “INT Amount” − will identify it as a refund interest payment and indicate the interest amount.

By law, these interest payments are taxable and taxpayers who receive them must report the interest on the 2020 federal income tax return they file next year. In January 2021, the IRS will send a Form 1099-INT to anyone who receives interest totaling at least $10.

This provision is different from the long-standing 45-day rule, generally requiring the IRS to add interest to refunds on timely-filed refund claims issued more than 45 days after the return due date.

Instead, this year’s COVID-19-related July 15 due date is considered a disaster-related postponement of the filing deadline. Where a disaster-related postponement exists, the IRS is required, by law, to pay interest, calculated from the original April 15 filing deadline, as long as an individual files a 2019 federal income tax return by the postponed deadline − July 15, 2020, in this instance. This refund interest requirement only applies to individual income tax filers − businesses are not eligible.

Interest is paid at the legally prescribed rate that is adjusted quarterly. The rate for the second quarter ending June 30 was 5%, compounded daily. Effective July 1, the rate for the third quarter dropped to 3%, compounded daily.

Where the calculation period spans quarters, a blended rate applies, consisting of the number of days falling in each calendar quarter. No interest will be added to any refund issued before the original April 15 deadline.

For more information, visit IRS.gov.