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Individual Tax Credits for Children and Education

Child Tax Credit

Taxpayers who have one or more qualifying children (child must not have attended the age of 17 by the end of the year and meets the dependency exemption requirements) may be entitled to a child tax credit of $1,000 per child through 2010. President Obama signed the Tax Relief, Unemployment Insurance, Reauthorization and Job Creation Act in December 2010 which extends this credit through December 2012. The credit begins to phase out when the adjusted gross income as specially modified exceeds $110,000 for joint filers and $75,000 for single taxpayers.

Credits for Higher Education Tuition

There are two education-related credits: the American Opportunity Tax Credit and the Lifetime Learning credit.

The American Opportunity Tax Credit amount per eligible student is equal to 100 percent of the first $2,000 of eligible expenses and 25 percent of the next $2,000 of eligible expenses paid during the year. The maximum credit is $2,500 per student and can only be claimed for four years by any student. The student must be enrolled in a program that leads to a degree, certificate or other recognized educational credential and is not for any education above post – secondary. The student must take at least one-half of the normal fulltime work load for the student’s course of study for at least one academic period beginning during the tax year and the student must be free of any felony conviction for possessing or distributing a controlled substance.

The Lifetime Learning credit is equal to 20 percent of the amount of qualified tuition expenses paid on the first $10,000 of tuition. The maximum credit is $2,000. The credit is per taxpayer and not per student. Thus, a family’s maximum credit is the same regardless of the number of students in the family.

An eligible student for the credit is a student who is enrolled in one or more courses at a qualified educational institution.

The allowable amount of credit for the Lifetime Learning Credit is reduced for taxpayers who have a modified gross income above certain amounts. For single taxpayers the phase-out of the credit begins when modified AGI reaches $50,000. For joint filers the phase-out range starts at $100,000. The phase-out for The American Opportunity Tax Credit is $80,000 for single taxpayers and $160,000 for joint filers. The American Opportunity Tax Credit and Lifetime Learning Credits are not available to married taxpayers who file separate returns.