Calling All Life-Long Learners!

Oct 2024

“Anyone who stops learning is old, whether at twenty or eighty. Anyone who keeps learning stays young.” – Henry Ford

At 39 years of age, I am back in school for the first time since graduating college! At the beginning of the year, I enrolled in a CFP® certification program which will culminate in March of 2025 when I sit for the board exam. The CFP® designation is a mark of excellence in the financial planning profession and something I believe will help me professionally for years to come.

And while it’s been nearly 17 years since I sat through a lecture, took copious notes, and crammed for an exam, I can honestly say that dusting off this part of my brain feels great. Like any new challenge, it certainly took time to reestablish study habits and figure out a plan for success, since this time around there are different considerations, like a day job and 3 kids at home! Yet, pushing myself to achieve a new goal and seeing the progress along the way is extremely fulfilling. So, with the support of my family, friends and the U.S. Government, here we are.

Yes! The U.S. government offers an incentive for continuing education through a specific tax credit called the Lifetime Learning Credit (LLC), making it not only intellectually enriching but also, financially advantageous. Let’s delve into how the tax credit for continuing education works and how you can benefit from it if you’re looking to pursue further learning.

What is the Lifetime Learning Credit (LLC)?

The Lifetime Learning Credit is a federal tax credit available to help offset the costs of tuition and related expenses for eligible students enrolled in eligible educational institutions.  According to the IRS, an eligible educational institution is a school offering higher education beyond high school. It is any college, university, trade school, or other post-secondary educational institution eligible to participate in a student aid program run by the U.S. Department of Education.

This includes most accredited public, non-profit and privately-owned–for-profit postsecondary institutions.

If you aren’t sure if your school is an eligible educational institution:

As of 2024, the LLC allows you to claim up to 20% of the first $10,000 of qualified education expenses per year, resulting in a maximum annual credit of $2,000 per taxpayer. This credit can reduce your tax liability dollar for dollar – and you can claim it for an unlimited number of years.

Eligibility Criteria

To qualify for the LLC tax credit, you generally need to meet certain criteria:

  • Enrollment Status: You must be enrolled in an eligible educational institution and the student attending the program is you, a spouse or a dependent on your tax return.
  • Income Limits: There are income phase-out limits. The taxpayer’s annual modified adjusted income in 2024 is $90,000 or less ($180,000 if married filing jointly). The credit phases out for taxpayers with income between $80,000 and $90,000 ($160,000 and $180,000).
  • Expenses: Qualified expenses generally include tuition, fees, and required course materials.

How to Claim the Credit

At the end of the year, the school will send you a 1098-T listing the eligible costs for the Lifetime Learning Credit. If you are eligible to claim this credit, you then fill out IRS Form 8863, listing information about yourself and the qualified expenses. Calculate your total tax credit under the LLC and then submit the form with the rest of your return. It’s crucial to keep records of your educational expenses and any forms provided by educational institutions or employers to support your claims.

It’s important to note that if you have a 529 college plan or Coverdell account, taking more than one tax break per expense is not allowed by the IRS. This means that the education expenses you use to claim the LLC can’t also be used to make your 529/Coverdell distributions tax-free.  You can however use a 529 plan to fund education related expenses over and above those used for the LLC deduction.

Employer-Provided Educational Assistance:

Before enrolling in any program or class, be sure to check with your employer to see if they offer tuition assistance. The IRS allows employers to reimburse employees up to $5,250 annually without the reimbursement being taxed if the money is for education related expenses such as tuition and supplies. While more can be offered in a company’s tuition reimbursement program, any amount above the allotted amount is categorized as a fringe benefit and will be subject to tax.

The requirements for tuition reimbursement programs vary significantly by employer, but here are some potential requirements to watch out for:

  • Time with the employer: While some tuition reimbursement jobs may offer the benefit on day one, others may require you to work for six months or more before you’re eligible.
  • Employee status: Some employers offer equal benefits to both part-time and full-time employees, while others may offer limited assistance to part-timers. You may also need to work a minimum number of hours to qualify.
  • Approved courses: Many employers offer assistance or reimbursement for certain programs and certificates. In some cases, there may be no program restrictions.
  • Grades: You may need to maintain a minimum grade level or GPA to receive reimbursement or to continue receiving prepaid assistance.
  • Continued employment: Some employers may require you to stay with the company for a certain amount of time after you receive your tuition reimbursement benefit. If you leave your position voluntarily, you may be required to repay some or all the reimbursement.

Tax credits and reimbursements for continuing education serve as a valuable tool for individuals looking to invest in their future through ongoing learning. Whether you’re pursuing a degree, taking professional courses, or enhancing specific skills, these benefits can significantly alleviate the financial burden.

Stay informed, stay curious, and continue to grow with every opportunity you pursue.

Happy learning and tax-saving!

More News