If I pay for my daughter $3000 for tuition for college. She is my dependent. How much do I save in

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yizzey
yizzey Member Newcomer

I save in Taxes?

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  • PamelaP
    PamelaP FreeTaxUSA Agent
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    Hi Yizzey, 

    Great question! Exactly how much you'll save will depend on your specific tax circumstances and what education credit is qualified for. There are two different education credits: The American Opportunity Credit and the Lifetime Learning Credit. You can only claim one of these credits for the same educational expenses. 

    Generally, the American Opportunity Credit (AOC) is more beneficial. The IRS gives the following information: 

    "You can get a maximum annual credit of $2,500 per eligible student. If the credit brings the amount of tax you owe to zero, you can have 40 percent of any remaining amount of the credit (up to $1,000) refunded to you. 

    The amount of the credit is 100 percent of the first $2,000 of qualified education expenses you paid for each eligible student and 25 percent of the next $2,000 of qualified education expenses you paid for that student." 

    AOTC | Internal Revenue Service (irs.gov) 

    If the qualifications for the credit are met, $3000 of education expenses could qualify for American Opportunity credit of up to $2250. 

    If the qualifications are not met for the AOC, the Lifetime Learning Credit has less stringent qualifications. This credit would result in a smaller benefit of 20% of the qualified education expenses for up to $10,000. In this case, that would be $600. This credit can reduce any taxes owed, but you would not receive any of the credit back as a refund. 

    You can read more about the Lifetime Learning Credit at the following IRS link: 

    LLC | Internal Revenue Service (irs.gov) 

    To enter education expenses in FreeTaxUSA, select "Deductions/Credits" > "College Tuition (Form 1098-T). The software will determine which credit is most beneficial for you.