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File 2012 taxes free online 3. File 2012 taxes free online   Lifetime Learning Credit Table of Contents Introduction Can You Claim the CreditWho Can Claim the Credit Who Cannot Claim the Credit What Expenses QualifyQualified Education Expenses No Double Benefit Allowed Expenses That Do Not Qualify Who Is an Eligible Student Who Can Claim a Dependent's Expenses Figuring the CreditEffect of the Amount of Your Income on the Amount of Your Credit Claiming the Credit Introduction For 2013, there are two tax credits available to help you offset the costs of higher education by reducing the amount of your income tax. File 2012 taxes free online They are the American opportunity credit and the lifetime learning credit. File 2012 taxes free online This chapter discusses the lifetime learning credit. File 2012 taxes free online The American opportunity credit is discussed in chapter 2, The American Opportunity Credit . File 2012 taxes free online This chapter explains: Who can claim the lifetime learning credit, What expenses qualify for the credit, Who is an eligible student, Who can claim a dependent's expenses, How to figure the credit, How to claim the credit, and When the credit must be repaid. File 2012 taxes free online What is the tax benefit of the lifetime learning credit. File 2012 taxes free online   For the tax year, you may be able to claim a lifetime learning credit of up to $2,000 for qualified education expenses paid for all eligible students. File 2012 taxes free online There is no limit on the number of years the lifetime learning credit can be claimed for each student. File 2012 taxes free online   A tax credit reduces the amount of income tax you may have to pay. File 2012 taxes free online Unlike a deduction, which reduces the amount of income subject to tax, a credit directly reduces the tax itself. File 2012 taxes free online The lifetime learning credit is a nonrefundable credit. File 2012 taxes free online This means that it can reduce your tax to zero, but if the credit is more than your tax the excess will not be refunded to you. File 2012 taxes free online   Your allowable lifetime learning credit may be limited by the amount of your income and the amount of your tax. File 2012 taxes free online Can you claim more than one education credit this year. File 2012 taxes free online   For each student, you can elect for any year only one of the credits. File 2012 taxes free online For example, if you elect to take the lifetime learning credit for a child on your 2013 tax return, you cannot, for that same child, also claim the American opportunity credit for 2013. File 2012 taxes free online   If you are eligible to claim the lifetime learning credit and you are also eligible to claim the American opportunity credit for the same student in the same year, you can choose to claim either credit, but not both. File 2012 taxes free online   If you pay qualified education expenses for more than one student in the same year, you can choose to take certain credits on a per-student, per-year basis. File 2012 taxes free online This means that, for example, you can claim the American opportunity credit for one student and the lifetime learning credit for another student in the same year. File 2012 taxes free online Differences between the American opportunity and lifetime learning credits. File 2012 taxes free online   There are several differences between these two credits. File 2012 taxes free online For example, you can claim the American opportunity credit for the same student for no more than 4 tax years, but any year in which the Hope Scholarship Credit was claimed counts toward the 4 years. File 2012 taxes free online However, there is no limit on the number of years for which you can claim a lifetime learning credit based on the same student's expenses. File 2012 taxes free online The differences between these credits are shown in Appendix B, Highlights of Education Tax Benefits for Tax Year 2013 near the end of this publication. File 2012 taxes free online Overview of the lifetime learning credit. File 2012 taxes free online   See Table 3-1, Overview of the Lifetime Learning Credit for the basics of the lifetime learning credit. File 2012 taxes free online The details are discussed in this chapter. File 2012 taxes free online Can You Claim the Credit The following rules will help you determine if you are eligible to claim the lifetime learning credit on your tax return. File 2012 taxes free online Who Can Claim the Credit Generally, you can claim the lifetime learning credit if all three of the following requirements are met. File 2012 taxes free online You pay qualified education expenses of higher education. File 2012 taxes free online You pay the education expenses for an eligible student. File 2012 taxes free online The eligible student is either yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. File 2012 taxes free online Table 3-1. File 2012 taxes free online Overview of the Lifetime Learning Credit Maximum credit Up to $2,000 credit per return Limit on modified adjusted gross income (MAGI) $127,000 if married filling jointly;  $63,000 if single, head of household, or qualifying widow(er) Refundable or nonrefundable Nonrefundable—credit limited to the amount of tax you must pay on your taxable income Number of years of postsecondary education Available for all years of postsecondary education and for courses to acquire or improve job skills Number of tax years credit available Available for an unlimited number of years Type of program required Student does not need to be pursuing a program leading to a degree or other recognized education credential Number of courses Available for one or more courses Felony drug conviction Felony drug convictions do not make the student ineligible Qualified expenses Tuition and fees required for enrollment or attendance (including amounts required to be paid to the institution for course-related books, supplies, and equipment) Payments for academic periods Payments made in 2013 for academic periods beginning in 2013 or beginning in the first 3 months of 2014 Note. File 2012 taxes free online Qualified education expenses paid by a dependent for whom you claim an exemption, or by a third party for that dependent, are considered paid by you. File 2012 taxes free online “Qualified education expenses” are defined later under Qualified Education Expenses . File 2012 taxes free online “Eligible students” are defined later under Who Is an Eligible Student . File 2012 taxes free online A dependent for whom you claim an exemption is defined later under Who Can Claim a Dependent's Expenses . File 2012 taxes free online You may find Figure 3-1, Can You Claim the Lifetime Learning Credit for 2013 , later, helpful in determining if you can claim a lifetime learning credit on your tax return. File 2012 taxes free online Who Cannot Claim the Credit You cannot claim the lifetime learning credit for 2013 if any of the following apply. File 2012 taxes free online Your filing status is married filing separately. File 2012 taxes free online You are listed as a dependent on another person's tax return (such as your parents'). File 2012 taxes free online See Who Can Claim a Dependent's Expenses , later. File 2012 taxes free online Your modified adjusted gross income (MAGI) is $63,000 or more ($127,000 or more in the case of a joint return). File 2012 taxes free online MAGI is explained later under Effect of the Amount of Your Income on the Amount of Your Credit . File 2012 taxes free online You (or your spouse) were a nonresident alien for any part of 2013 and the nonresident alien did not elect to be treated as a resident alien for tax purposes. File 2012 taxes free online More information on nonresident aliens can be found in Publication 519. File 2012 taxes free online You claim the American Opportunity Credit (see chapter 2) or a Tuition and Fees Deduction (see chapter 6) for the same student in 2013. File 2012 taxes free online What Expenses Qualify The lifetime learning credit is based on qualified education expenses you pay for yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. File 2012 taxes free online Generally, the credit is allowed for qualified education expenses paid in 2013 for an academic period beginning in 2013 or in the first 3 months of 2014. File 2012 taxes free online For example, if you paid $1,500 in December 2013 for qualified tuition for the spring 2014 semester beginning in January 2014, you may be able to use that $1,500 in figuring your 2013 credit. File 2012 taxes free online Academic period. File 2012 taxes free online   An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. File 2012 taxes free online In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. File 2012 taxes free online Paid with borrowed funds. File 2012 taxes free online   You can claim a lifetime learning credit for qualified education expenses paid with the proceeds of a loan. File 2012 taxes free online You use the expenses to figure the lifetime learning credit for the year in which the expenses are paid, not the year in which the loan is repaid. File 2012 taxes free online Treat loan disbursements sent directly to the educational institution as paid on the date the institution credits the student's account. File 2012 taxes free online Student withdraws from class(es). File 2012 taxes free online   You can claim a lifetime learning credit for qualified education expenses not refunded when a student withdraws. File 2012 taxes free online Qualified Education Expenses For purposes of the lifetime learning credit, qualified education expenses are tuition and certain related expenses required for enrollment in a course at an eligible educational institution. File 2012 taxes free online The course must be either part of a postsecondary degree program or taken by the student to acquire or improve job skills. File 2012 taxes free online Eligible educational institution. File 2012 taxes free online   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. File 2012 taxes free online S. File 2012 taxes free online Department of Education. File 2012 taxes free online It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. File 2012 taxes free online The educational institution should be able to tell you if it is an eligible educational institution. File 2012 taxes free online   Certain educational institutions located outside the United States also participate in the U. File 2012 taxes free online S. File 2012 taxes free online Department of Education's Federal Student Aid (FSA) programs. File 2012 taxes free online Related expenses. File 2012 taxes free online   Student-activity fees and expenses for course-related books, supplies, and equipment are included in qualified education expenses only if the fees and expenses must be paid to the institution for enrollment or attendance. File 2012 taxes free online Prepaid expenses. File 2012 taxes free online   Qualified education expenses paid in 2013 for an academic period that begins in the first three months of 2014 can be used in figuring an education credit for 2013 only. File 2012 taxes free online See Academic period , earlier. File 2012 taxes free online For example, you pay $2,000 in December 2013 for qualified tuition for the 2014 winter quarter that begins in January 2014, you can use that $2,000 in figuring an education credit for 2013 only (if you meet all the other requirements). File 2012 taxes free online You cannot use any amount you paid in 2012 or 2014 to figure the qualified education expenses you use to figure your 2013 education credit(s). File 2012 taxes free online In the following examples, assume that each student is an eligible student at an eligible educational institution. File 2012 taxes free online Example 1. File 2012 taxes free online   Jackson is a sophomore in University V's degree program in dentistry. File 2012 taxes free online This year, in addition to tuition, he is required to pay a fee to the university for the rental of the dental equipment he will use in this program. File 2012 taxes free online Because the equipment rental fee must be paid to University V for enrollment and attendance, Jackson's equipment rental fee is a qualified expense. File 2012 taxes free online Example 2. File 2012 taxes free online   Donna and Charles, both first-year students at College W, are required to have certain books and other reading materials to use in their mandatory first-year classes. File 2012 taxes free online The college has no policy about how students should obtain these materials, but any student who purchases them from College W's bookstore will receive a bill directly from the college. File 2012 taxes free online Charles bought his books from a friend, so what he paid for them is not a qualified education expense. File 2012 taxes free online Donna bought hers at College W's bookstore. File 2012 taxes free online Although Donna paid College W directly for her first-year books and materials, her payment is not a qualified expense because the books and materials are not required to be purchased from College W for enrollment or attendance at the institution. File 2012 taxes free online Example 3. File 2012 taxes free online   When Marci enrolled at College X for her freshman year, she had to pay a separate student activity fee in addition to her tuition. File 2012 taxes free online This activity fee is required of all students, and is used solely to fund on-campus organizations and activities run by students, such as the student newspaper and student government. File 2012 taxes free online No portion of the fee covers personal expenses. File 2012 taxes free online Although labeled as a student activity fee, the fee is required for Marci's enrollment and attendance at College X. File 2012 taxes free online Therefore, it is a qualified expense. File 2012 taxes free online No Double Benefit Allowed You cannot do any of the following: Deduct higher education expenses on your income tax return (as, for example, a business expense) and also claim a lifetime learning credit based on those same expenses. File 2012 taxes free online Claim a lifetime learning credit in the same year that you are claiming a tuition and fees deduction for the same student. File 2012 taxes free online Claim a lifetime learning credit and an American opportunity credit based on the same qualified education expenses. File 2012 taxes free online Claim a lifetime learning credit based on the same expenses used to figure the tax-free portion of a distribution from a Coverdell education savings account (ESA) or qualified tuition program (QTP). File 2012 taxes free online See Coordination With American Opportunity and Lifetime Learning Credits in chapter 7, Coverdell Education Savings Account, and Coordination With American Opportunity and Lifetime Learning Credits in chapter 8, Qualified Tuition Program. File 2012 taxes free online Claim a credit based on qualified education expenses paid with tax-free educational assistance, such as a scholarship, grant, or assistance provided by an employer. File 2012 taxes free online See Adjustments to Qualified Education Expenses, next. File 2012 taxes free online This image is too large to be displayed in the current screen. File 2012 taxes free online Please click the link to view the image. File 2012 taxes free online Figure 3-1 Adjustments to Qualified Education Expenses For each student, reduce the qualified education expenses paid by or on behalf of that student under the following rules. File 2012 taxes free online The result is the amount of adjusted qualified education expenses for each student. File 2012 taxes free online Tax-free educational assistance. File 2012 taxes free online   For tax-free educational assistance received in 2013, reduce the qualified educational expenses for each academic period by the amount of tax-free educational assistance allocable to that academic period. File 2012 taxes free online See Academic period , earlier. File 2012 taxes free online   Some tax-free educational assistance received after 2013 may be treated as a refund of qualified education expenses paid in 2013. File 2012 taxes free online This tax-free educational assistance is any tax-free educational assistance received by you or anyone else after 2013 for qualified education expenses paid on behalf of a student in 2013 (or attributable to enrollment at an eligible educational institution during 2013). File 2012 taxes free online   If this tax-free educational assistance is received after 2013 but before you file your 2013 income tax return, see Refunds received after 2013 but before your income tax return is filed , later. File 2012 taxes free online If this tax-free educational assistance is received after 2013 and after you file your 2013 income tax return, see Refunds received after 2013 and after your income tax return is filed , later. File 2012 taxes free online   Tax-free educational assistance includes: The tax-free part of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. File 2012 taxes free online Generally, any scholarship or fellowship is treated as tax free. File 2012 taxes free online However, a scholarship or fellowship is not treated as tax free to the extent the student includes it in gross income (if the student is required to file a tax return for the year the scholarship or fellowship is received) and either of the following is true. File 2012 taxes free online The scholarship or fellowship (or any part of it) must be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. File 2012 taxes free online The scholarship or fellowship (or any part of it) may be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. File 2012 taxes free online You may be able to increase the combined value of an education credit and certain educational assistance if the student includes some or all of the educational assistance in income in the year it is received. File 2012 taxes free online For examples, see Coordination with Pell grants and other scholarships, later. File 2012 taxes free online Refunds. File 2012 taxes free online   A refund of qualified education expenses may reduce adjusted qualified education expenses for the tax year or require repayment (recapture) of a credit claimed in an earlier year. File 2012 taxes free online Some tax-free educational assistance received after 2013 may be treated as a refund. File 2012 taxes free online See Tax-free educational assistance , earlier. File 2012 taxes free online Refunds received in 2013. File 2012 taxes free online   For each student, figure the adjusted qualified education expenses for 2013 by adding all the qualified education expenses for 2013 and subtracting any refunds of those expenses received from the eligible educational institution during 2013. File 2012 taxes free online Refunds received after 2013 but before your income tax return is filed. File 2012 taxes free online   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is paid before you file an income tax return for 2013, the amount of qualified education expenses for 2013 is reduced by the amount of the refund. File 2012 taxes free online Refunds received after 2013 and after your income tax return is filed. File 2012 taxes free online   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is paid after you file an income tax return for 2013, you may need to repay some or all of the credit. File 2012 taxes free online See Credit recapture, next. File 2012 taxes free online Credit recapture. File 2012 taxes free online    If any tax-free educational assistance for the qualified education expenses paid in 2013 or any refund of your qualified education expenses paid in 2013 is received after you file your 2013 income tax return, you must recapture (repay) any excess credit. File 2012 taxes free online You do this by refiguring the amount of your adjusted qualified education expenses for 2013 by reducing the expenses by the amount of the refund or tax-free educational assistance. File 2012 taxes free online You then refigure your education credit(s) for 2013 and figure the amount by which your 2013 tax liability would have increased if you had claimed the refigured credit(s). File 2012 taxes free online Include that amount as an additional tax for the year the refund or tax-free assistance was received. File 2012 taxes free online Example. File 2012 taxes free online   You pay $9,300 in tuition and fees in December 2013, and your child began college in January 2014. File 2012 taxes free online You filed your 2013 tax return on February 14, 2014, and claimed a lifetime learning credit of $1,860. File 2012 taxes free online You claimed no other tax credits. File 2012 taxes free online After you filed your return, your child withdrew from two courses and you received a refund of $2,900. File 2012 taxes free online You must refigure your 2013 lifetime learning credit using $6,400 of qualified education expenses instead of $9,300. File 2012 taxes free online The refigured credit is $1,280 and your tax liability increased by $580. File 2012 taxes free online See instructions for your 2014 income tax return to determine where to include this tax. File 2012 taxes free online If you pay qualified education expenses in 2014 for an academic period that begins in the first 3 months of 2014 and you receive tax-free educational assistance, or a refund, as described above, you may choose to reduce your qualified education expenses for 2014 instead of reducing your expenses for 2013. File 2012 taxes free online Amounts that do not reduce qualified education expenses. File 2012 taxes free online   Do not reduce qualified education expenses by amounts paid with funds the student receives as: Payment for services, such as wages, A loan, A gift, An inheritance, or A withdrawal from the student's personal savings. File 2012 taxes free online   Do not reduce the qualified education expenses by any scholarship or fellowship reported as income on the student's tax return in the following situations. File 2012 taxes free online The use of the money is restricted, by the terms of the scholarship or fellowship, to costs of attendance (such as room and board) other than qualified education expenses, as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. File 2012 taxes free online The use of the money is not restricted. File 2012 taxes free online For examples, see Adjustments to Qualified Education Expenses in chapter 2, American Opportunity Credit. File 2012 taxes free online Coordination with Pell grants and other scholarships. File 2012 taxes free online   In some cases, you may be able to reduce your tax liability by including scholarships in income. File 2012 taxes free online If you are claiming an education credit for a claimed dependent who received a scholarship, you may be able to reduce your tax liability if the student includes the scholarship in income. File 2012 taxes free online The scholarship must be one that may (by its terms) be applied to expenses (such as room and board) other than qualified education expenses. File 2012 taxes free online Example 1—No scholarship. File 2012 taxes free online Judy Green, who is unmarried, is taking courses at a public community college to be recertified to teach in public schools. File 2012 taxes free online Her AGI and her MAGI, for purposes of the credit, are $27,000. File 2012 taxes free online Judy takes the standard deduction of $5,950 and personal exemption of $3,800, reducing her AGI to taxable income of $17,250 and her tax before credits is $2,156. File 2012 taxes free online She claims no credits other than the lifetime learning credit. File 2012 taxes free online In July 2013 she paid $700 for the summer 2013 semester; in August 2013 she paid $1,900 for the fall 2013 semester; and in December 2013 she paid another $1,900 for the spring semester beginning in January 2014. File 2012 taxes free online Judy and the college meet all requirements for the lifetime learning tax credit. File 2012 taxes free online She can use all of the $4,500 tuition she paid in 2013 when figuring her 2013 lifetime learning credit. File 2012 taxes free online She claims a $900 lifetime learning credit and her tax after credits is $1,256. File 2012 taxes free online Example 2—Scholarship excluded from income. File 2012 taxes free online The facts are the same as in Example 1—No scholarship, except that Judy was awarded a $1,500 scholarship. File 2012 taxes free online Under the terms of her scholarship, it may be used to pay any educational expenses, including room and board. File 2012 taxes free online If Judy excludes the scholarship from income, she will be deemed (for purposes of computing her education credit) as having used the scholarship to pay for tuition, required fees, and course materials. File 2012 taxes free online Only $3,000 of the $4,500 tuition she paid in 2013 could be used when figuring her 2013 lifetime learning credit. File 2012 taxes free online Her lifetime learning credit would be reduced to $600 and her tax after credits would be $1,556. File 2012 taxes free online Example 3—Scholarship included in income. File 2012 taxes free online The facts are the same as in Example 2—Scholarship excluded from income. File 2012 taxes free online If, unlike Example 2, Judy includes the $1,500 scholarship in income, she will be deemed to have used the entire scholarship to pay for room and board. File 2012 taxes free online Judy's AGI will increase to $28,500, her taxable income would be $18,750, and her tax before credits would be $2,381. File 2012 taxes free online She would be able to use the $4,500 of adjusted qualified education expenses to figure her credit. File 2012 taxes free online Judy could claim a $900 lifetime learning credit and her tax after credits would be $1,481. File 2012 taxes free online Expenses That Do Not Qualify Qualified education expenses do not include amounts paid for: Insurance, Medical expenses (including student health fees), Room and board, Transportation, or Similar personal, living, or family expenses. File 2012 taxes free online This is true even if the amount must be paid to the institution as a condition of enrollment or attendance. File 2012 taxes free online Sports, games, hobbies, and noncredit courses. File 2012 taxes free online   Qualified education expenses generally do not include expenses that relate to any course of instruction or other education that involves sports, games or hobbies, or any noncredit course. File 2012 taxes free online However, if the course of instruction or other education is part of the student's degree program or is taken by the student to acquire or improve job skills, these expenses can qualify. File 2012 taxes free online Comprehensive or bundled fees. File 2012 taxes free online   Some eligible educational institutions combine all of their fees for an academic period into one amount. File 2012 taxes free online If you do not receive or do not have access to an allocation showing how much you paid for qualified education expenses and how much you paid for personal expenses, such as those listed above, contact the institution. File 2012 taxes free online The institution is required to make this allocation and provide you with the amount you paid (or were billed) for qualified education expenses on Form 1098-T. File 2012 taxes free online See Figuring the Credit , later, for more information about Form 1098-T. File 2012 taxes free online Who Is an Eligible Student For purposes of the lifetime learning credit, an eligible student is a student who is enrolled in one or more courses at an eligible educational institution (as defined under Qualified Education Expenses , earlier). File 2012 taxes free online Who Can Claim a Dependent's Expenses If there are qualified education expenses for your dependent during a tax year, either you or your dependent, but not both of you, can claim a lifetime learning credit for your dependent's expenses for that year. File 2012 taxes free online For you to claim a lifetime learning credit for your dependent's expenses, you must also claim an exemption for your dependent. File 2012 taxes free online You do this by listing your dependent's name and other required information on Form 1040 (or Form 1040A), line 6c. File 2012 taxes free online IF you. File 2012 taxes free online . File 2012 taxes free online . File 2012 taxes free online THEN only. File 2012 taxes free online . File 2012 taxes free online . File 2012 taxes free online claim an exemption on your tax return for a dependent who is an eligible student you can claim the lifetime learning credit based on that dependent's expenses. File 2012 taxes free online The dependent cannot claim the credit. File 2012 taxes free online do not claim an exemption on your tax return for a dependent who is an eligible student (even if entitled to the exemption) the dependent can claim the lifetime learning credit. File 2012 taxes free online You cannot claim the credit based on this dependent's expenses. File 2012 taxes free online Expenses paid by dependent. File 2012 taxes free online   If you claim an exemption on your tax return for an eligible student who is your dependent, treat any expenses paid (or deemed paid) by your dependent as if you had paid them. File 2012 taxes free online Include these expenses when figuring the amount of your lifetime learning credit. File 2012 taxes free online    Qualified education expenses paid directly to an eligible educational institution for your dependent under a court-approved divorce decree are treated as paid by your dependent. File 2012 taxes free online Expenses paid by you. File 2012 taxes free online   If you claim an exemption for a dependent who is an eligible student, only you can include any expenses you paid when figuring the amount of the lifetime learning credit. File 2012 taxes free online If neither you nor anyone else claims an exemption for the dependent, only the dependent can include any expenses you paid when figuring the lifetime learning credit. File 2012 taxes free online Expenses paid by others. File 2012 taxes free online   Someone other than you, your spouse, or your dependent (such as a relative or former spouse) may make a payment directly to an eligible educational institution to pay for an eligible student's qualified education expenses. File 2012 taxes free online In this case, the student is treated as receiving the payment from the other person and, in turn, paying the institution. File 2012 taxes free online If you claim an exemption on your tax return for the student, you are considered to have paid the expenses. File 2012 taxes free online Example. File 2012 taxes free online In 2013, Ms. File 2012 taxes free online Allen makes a payment directly to an eligible educational institution for her grandson Todd's qualified education expenses. File 2012 taxes free online For purposes of claiming a lifetime learning credit, Todd is treated as receiving the money from his grandmother and, in turn, paying his qualified education expenses himself. File 2012 taxes free online Unless an exemption for Todd is claimed on someone else's 2013 tax return, only Todd can use the payment to claim a lifetime learning credit. File 2012 taxes free online If anyone, such as Todd's parents, claims an exemption for Todd on his or her 2013 tax return, whoever claims the exemption may be able to use the expenses to claim a lifetime learning credit. File 2012 taxes free online If anyone else claims an exemption for Todd, Todd cannot claim a lifetime learning credit. File 2012 taxes free online Tuition reduction. File 2012 taxes free online   When an eligible educational institution provides a reduction in tuition to an employee of the institution (or spouse or dependent child of an employee), the amount of the reduction may or may not be taxable. File 2012 taxes free online If it is taxable, the employee is treated as receiving a payment of that amount and, in turn, paying it to the educational institution on behalf of the student. File 2012 taxes free online For more information on tuition reductions, see Qualified Tuition Reduction in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. File 2012 taxes free online Figuring the Credit The amount of the lifetime learning credit is 20% of the first $10,000 of qualified education expenses you paid for all eligible students. File 2012 taxes free online The maximum amount of lifetime learning credit you can claim for 2013 is $2,000 (20% × $10,000). File 2012 taxes free online However, that amount may be reduced based on your MAGI. File 2012 taxes free online See Effect of the Amount of Your Income on the Amount of Your Credit , later. File 2012 taxes free online Example. File 2012 taxes free online Bruce and Toni Harper are married and file a joint tax return. File 2012 taxes free online For 2013, their MAGI is $75,000. File 2012 taxes free online Toni is attending a local college (an eligible educational institution) to earn credits toward a degree in nursing. File 2012 taxes free online She already has a bachelor's degree in history and wants to become a nurse. File 2012 taxes free online In August 2013, Toni paid $5,000 of qualified education expenses for her fall 2013 semester. File 2012 taxes free online Bruce and Toni can claim a $1,000 (20% × $5,000) lifetime learning credit on their 2013 joint tax return. File 2012 taxes free online Form 1098-T. File 2012 taxes free online   To help you figure your lifetime learning credit, the student should receive Form 1098-T. File 2012 taxes free online Generally, an eligible educational institution (such as a college or university) must send Form 1098-T (or acceptable substitute) to each enrolled student by January 31, 2014. File 2012 taxes free online An institution may choose to report either payments received (box 1), or amounts billed (box 2), for qualified education expenses. File 2012 taxes free online However, the amounts in boxes 1 and 2 of Form 1098-T might be different from what you paid. File 2012 taxes free online When figuring the credit, use only the amounts you paid or are deemed to have paid in 2013 for qualified education expenses. File 2012 taxes free online   In addition, Form 1098-T should give other information for that institution, such as adjustments made for prior years, the amount of scholarships or grants, reimbursements or refunds, and whether the student was enrolled at least half-time or was a graduate student. File 2012 taxes free online    The eligible educational institution may ask for a completed Form W-9S, or similar statement to obtain the student's name, address, and taxpayer identification number. File 2012 taxes free online Effect of the Amount of Your Income on the Amount of Your Credit The amount of your lifetime learning credit is phased out (gradually reduced) if your MAGI is between $53,000 and $63,000 ($107,000 and $127,000 if you file a joint return). File 2012 taxes free online You cannot claim a lifetime learning credit if your MAGI is $63,000 or more ($127,000 or more if you file a joint return). File 2012 taxes free online Modified adjusted gross income (MAGI). File 2012 taxes free online   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return. File 2012 taxes free online MAGI when using Form 1040A. File 2012 taxes free online   If you file Form 1040A, your MAGI is the AGI on line 22 of that form. File 2012 taxes free online MAGI when using Form 1040. File 2012 taxes free online   If you file Form 1040, your MAGI is the AGI on line 38 of that form, modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. File 2012 taxes free online You can use Worksheet 3-1 to figure your MAGI. File 2012 taxes free online Worksheet 3-1. File 2012 taxes free online MAGI for the Lifetime Learning Credit 1. File 2012 taxes free online Enter your adjusted gross income  (Form 1040, line 38)   1. File 2012 taxes free online   2. File 2012 taxes free online Enter your foreign earned income exclusion and/or housing exclusion (Form 2555, line 45, or Form 2555-EZ, line 18)   2. File 2012 taxes free online       3. File 2012 taxes free online Enter your foreign housing deduction (Form 2555, line 50)   3. File 2012 taxes free online       4. File 2012 taxes free online Enter the amount of income from Puerto Rico you are excluding   4. File 2012 taxes free online       5. File 2012 taxes free online Enter the amount of income from American Samoa you are excluding (Form 4563, line 15)   5. File 2012 taxes free online       6. File 2012 taxes free online Add the amounts on lines 2, 3, 4, and 5   6. File 2012 taxes free online   7. File 2012 taxes free online Add the amounts on lines 1 and 6. File 2012 taxes free online  This is your modified adjusted  gross income. File 2012 taxes free online Enter this amount  on Form 8863, line 14   7. File 2012 taxes free online   Phaseout. File 2012 taxes free online   If your MAGI is within the range of incomes where the credit must be reduced, you will figure your reduced credit using lines 10-18 of Form 8863. File 2012 taxes free online The same method is shown in the following example. File 2012 taxes free online Example. File 2012 taxes free online You are filing a joint return with a MAGI of $112,000. File 2012 taxes free online In 2013, you paid $6,600 of qualified education expenses. File 2012 taxes free online You figure the tentative lifetime learning credit (20% of the first $10,000 of qualified education expenses you paid for all eligible students). File 2012 taxes free online The result is a $1,320 (20% x $6,600) tentative credit. File 2012 taxes free online Because your MAGI is within the range of incomes where the credit must be reduced, you must multiply your tentative credit ($1,320) by a fraction. File 2012 taxes free online The numerator of the fraction is $127,000 (the upper limit for those filing a joint return) minus your MAGI. File 2012 taxes free online The denominator is $20,000, the range of incomes for the phaseout ($107,000 to $127,000). File 2012 taxes free online The result is the amount of your phased out (reduced) lifetime learning credit ($990). File 2012 taxes free online   $1,320 × $127,000 − $112,000  $20,000 = $990   Claiming the Credit You claim the lifetime learning credit by completing Form 8863 and submitting it with your Form 1040 or 1040A. File 2012 taxes free online Enter the credit on Form 1040, line 49, or Form 1040A, line 31. File 2012 taxes free online Note. File 2012 taxes free online In Appendix A, Illustrated Example of Education Credits at the end of this publication, there is an example illustrating the use of Form 8863 when both the American opportunity credit and the lifetime learning credit are claimed on the same tax return. File 2012 taxes free online Prev  Up  Next   Home   More Online Publications
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The File 2012 Taxes Free Online

File 2012 taxes free online 1. File 2012 taxes free online   403(b) Plan Basics Table of Contents What Is a 403(b) Plan? What Are the Benefits of Contributing to a 403(b) Plan?Excluded. File 2012 taxes free online Deducted. File 2012 taxes free online Who Can Participate in a 403(b) Plan?Ministers. File 2012 taxes free online Who Can Set Up a 403(b) Account? How Can Contributions Be Made to My 403(b) Account? Do I Report Contributions on My Tax Return? How Much Can Be Contributed to My 403(b) Account? This chapter introduces you to 403(b) plans and accounts. File 2012 taxes free online Specifically, the chapter answers the following questions. File 2012 taxes free online What is a 403(b) plan? What are the benefits of contributing to a 403(b) plan? Who can participate in a 403(b) plan? Who can set up a 403(b) account? How can contributions be made to my 403(b) account? Do I report contributions on my tax return? How much can be contributed to my 403(b) account? What Is a 403(b) Plan? A 403(b) plan, also known as a tax-sheltered annuity (TSA) plan, is a retirement plan for certain employees of public schools, employees of certain tax-exempt organizations, and certain ministers. File 2012 taxes free online Individual accounts in a 403(b) plan can be any of the following types. File 2012 taxes free online An annuity contract, which is a contract provided through an insurance company, A custodial account, which is an account invested in mutual funds, or A retirement income account set up for church employees. File 2012 taxes free online Generally, retirement income accounts can invest in either annuities or mutual funds. File 2012 taxes free online We use the term “403(b) account” to refer to any one of these funding arrangements throughout this publication, unless otherwise specified. File 2012 taxes free online What Are the Benefits of Contributing to a 403(b) Plan?  There are three benefits to contributing to a 403(b) plan. File 2012 taxes free online The first benefit is that you do not pay income tax on allowable contributions until you begin making withdrawals from the plan, usually after you retire. File 2012 taxes free online Allowable contributions to a 403(b) plan are either excluded or deducted from your income. File 2012 taxes free online However, if your contributions are made to a Roth contribution program, this benefit does not apply. File 2012 taxes free online Instead, you pay income tax on the contributions to the plan but distributions from the plan (if certain requirements are met) are tax free. File 2012 taxes free online Note. File 2012 taxes free online Generally, employees must pay social security and Medicare tax on their contributions to a 403(b) plan, including those made under a salary reduction agreement. File 2012 taxes free online See chapter 4, Limit on Elective Deferrals , for more information. File 2012 taxes free online The second benefit is that earnings and gains on amounts in your 403(b) account are not taxed until you withdraw them. File 2012 taxes free online Earnings and gains on amounts in a Roth contribution program are not taxed if your withdrawals are qualified distributions. File 2012 taxes free online Otherwise, they are taxed when you withdraw them. File 2012 taxes free online The third benefit is that you may be eligible to take a credit for elective deferrals contributed to your 403(b) account. File 2012 taxes free online See chapter 10, Retirement Savings Contributions Credit (Saver's Credit) . File 2012 taxes free online Excluded. File 2012 taxes free online   If an amount is excluded from your income, it is not included in your total wages on your Form W-2. File 2012 taxes free online This means that you do not report the excluded amount on your tax return. File 2012 taxes free online Deducted. File 2012 taxes free online   If an amount is deducted from your income, it is included with your other wages on your Form W-2. File 2012 taxes free online You report this amount on your tax return, but you are allowed to subtract it when figuring the amount of income on which you must pay tax. File 2012 taxes free online Who Can Participate in a 403(b) Plan? Any eligible employee can participate in a 403(b) plan. File 2012 taxes free online Eligible employees. File 2012 taxes free online   The following employees are eligible to participate in a 403(b) plan. File 2012 taxes free online Employees of tax-exempt organizations established under section 501(c)(3). File 2012 taxes free online These organizations are usually referred to as section 501(c)(3) organizations or simply 501(c)(3) organizations. File 2012 taxes free online Employees of public school systems who are involved in the day-to-day operations of a school. File 2012 taxes free online Employees of cooperative hospital service organizations. File 2012 taxes free online Civilian faculty and staff of the Uniformed Services University of the Health Sciences. File 2012 taxes free online Employees of public school systems organized by Indian tribal governments. File 2012 taxes free online Certain ministers (explained next). File 2012 taxes free online Ministers. File 2012 taxes free online   The following ministers are eligible employees for whom a 403(b) account can be established. File 2012 taxes free online Ministers employed by section 501(c)(3) organizations. File 2012 taxes free online Self-employed ministers. File 2012 taxes free online A self-employed minister is treated as employed by a tax-exempt organization that is a qualified employer. File 2012 taxes free online Ministers (chaplains) who meet both of the following requirements. File 2012 taxes free online They are employed by organizations that are not section 501(c)(3) organizations. File 2012 taxes free online They function as ministers in their day-to-day professional responsibilities with their employers. File 2012 taxes free online   Throughout this publication, the term chaplain will be used to mean ministers described in the third category in the list above. File 2012 taxes free online Example. File 2012 taxes free online A minister employed as a chaplain by a state-run prison and a chaplain in the United States Armed Forces are eligible employees because their employers are not section 501(c)(3) organizations and they are employed as ministers. File 2012 taxes free online Who Can Set Up a 403(b) Account? You cannot set up your own 403(b) account. File 2012 taxes free online Only employers can set up 403(b) accounts. File 2012 taxes free online A self-employed minister cannot set up a 403(b) account for his or her benefit. File 2012 taxes free online If you are a self-employed minister, only the organization (denomination) with which you are associated can set up an account for your benefit. File 2012 taxes free online How Can Contributions Be Made to My 403(b) Account? Generally, only your employer can make contributions to your 403(b) account. File 2012 taxes free online However, some plans will allow you to make after-tax contributions (defined below). File 2012 taxes free online The following types of contributions can be made to 403(b) accounts. File 2012 taxes free online Elective deferrals . File 2012 taxes free online These are contributions made under a salary reduction agreement. File 2012 taxes free online This agreement allows your employer to withhold money from your paycheck to be contributed directly into a 403(b) account for your benefit. File 2012 taxes free online Except for Roth contributions, you do not pay income tax on these contributions until you withdraw them from the account. File 2012 taxes free online If your contributions are Roth contributions, you pay taxes on your contributions but any qualified distributions from your Roth account are tax free. File 2012 taxes free online Nonelective contributions . File 2012 taxes free online These are employer contributions that are not made under a salary reduction agreement. File 2012 taxes free online Nonelective contributions include matching contributions, discretionary contributions, and mandatory contributions from your employer. File 2012 taxes free online You do not pay income tax on these contributions until you withdraw them from the account. File 2012 taxes free online After-tax contributions . File 2012 taxes free online These are contributions (that are not Roth contributions) you make with funds that you must include in income on your tax return. File 2012 taxes free online A salary payment on which income tax has been withheld is a source of these contributions. File 2012 taxes free online If your plan allows you to make after-tax contributions, they are not excluded from income and you cannot deduct them on your tax return. File 2012 taxes free online A combination of any of the three contribution types listed above. File 2012 taxes free online Self-employed minister. File 2012 taxes free online   If you are a self-employed minister, you are considered both an employee and an employer, and you can contribute to a retirement income account for your own benefit. File 2012 taxes free online Do I Report Contributions on My Tax Return? Generally, you do not report contributions to your 403(b) account (except Roth contributions) on your tax return. File 2012 taxes free online Your employer will report contributions on your 2013 Form W-2. File 2012 taxes free online Elective deferrals will be shown in box 12 and the Retirement plan box will be checked in box 13. File 2012 taxes free online If you are a self-employed minister or chaplain, see the discussions next. File 2012 taxes free online Self-employed ministers. File 2012 taxes free online   If you are a self-employed minister, you must report the total contributions as a deduction on your tax return. File 2012 taxes free online Deduct your contributions on line 28 of the 2013 Form 1040. File 2012 taxes free online Chaplains. File 2012 taxes free online   If you are a chaplain and your employer does not exclude contributions made to your 403(b) account from your earned income, you may be able to take a deduction for those contributions on your tax return. File 2012 taxes free online    However, if your employer has agreed to exclude the contributions from your earned income, you will not be allowed a deduction on your tax return. File 2012 taxes free online   If you can take a deduction, include your contributions on line 36 of the 2013 Form 1040. File 2012 taxes free online Enter the amount of your deduction and write “403(b)” on the dotted line next to line 36. File 2012 taxes free online How Much Can Be Contributed to My 403(b) Account? There are limits on the amount of contributions that can be made to your 403(b) account each year. File 2012 taxes free online If contributions made to your 403(b) account are more than these contribution limits, penalties may apply. File 2012 taxes free online Chapters 2 through 6 provide information on how to determine the amount that can be contributed to your 403(b) account. File 2012 taxes free online Worksheets are provided in Chapter 9 to help you determine the maximum amount that can be contributed to your 403(b) account each year. File 2012 taxes free online Chapter 7, Excess Contributions , describes how to prevent excess contributions and how to get an excess contribution corrected. File 2012 taxes free online Prev  Up  Next   Home   More Online Publications