10 Education Tax Credit Obj 2 Curt and Kathy Norton paid 320

10. Education Tax Credit. (Obj. 2) Curt and Kathy Norton paid $3,200 of tuition for their son, who attends college less than half-time. Ofthis amount, $1,500 was paid on December 28, 2015, for the Spring 2016 semester, and $1,700 was paid on August 4, 2016, for the Fall 2016 semester Compute the Nortons\' 2016 education tax credit if their AGI is $71,900. How much a. of their credit is refundable versus nonrefundable? b. Same as in Part a., except that the Nortons\' AGI is $119,816.

Solution

Education credits can be claimed by persons who pay tution fee paid for themselves or for eligible students.

There are two types of credit available:

1.American opportunity credit :

Eligibility:

2. Lifetime learning credit

Eligibility

As per the ab Curt and Kathy are eligible for life time tax credit.

To compute the lifetime learning credit, taxpayers multiply 20% by the lesser of

(i) $10,000 or

(ii) qualified tuition costs for the year. As with the American opportunity credit, tuition paid in 2015 for classes beginning before April 1, 2016, qualify for the lifetime learning credit in 2015.

(a) As the AGI for the year 2015 is $71900 that is less than $100000, the life time tax credit available for 2015 would be 20% of lesser of $10000 or $1500 actual paid

= 20% of $1500 = $300.

As the AGI for the year 2016 is $71900 that is less than $100000, the life time tax credit available for 2016 would be 20% of lesser of $10000 or $1700 actual paid

= 20% of $1700 = $340.

Here total credit is refundable as the AGI is less than the threshold of $100,000

(b)

As the AGI for the year 2015 is $119,816 that is less than $100000, the life time tax credit available for 2015 would be

Life time tax credit x (AGI-100,000)/20000 = 300 X (119816-100000)/20000

= 300 X 19816/20000 = $297.24

Refundable tax credit = $297.24

Non refundable tax credit = 300-297.24 = 2.76

As the AGI for the year 2016 is $119,816 that is less than $100000, the life time tax credit available for 2016 would be

Life time tax credit x (AGI-100,000)/20000 = 340 X (119816-100000)/20000

= 340 X 19816/20000 = $336.87

Refundable tax credit = $336.87

Non refundable tax credit = 340-336.87 = $3.13