Home / Consolidated Appropriations Act, 2021: Modifications to Educational Tax Benefits

Consolidated Appropriations Act, 2021: Modifications to Educational Tax Benefits

January 4, 2021 | Tax Planning

The Consolidated Appropriations Act, 2021 makes changes to two popular educational tax benefits. The above-the-line deduction for qualified tuition and related expenses is not extended and expires at the end of 2020. However, the modified adjusted gross income threshold to qualify for the lifetime learning credit is increased to allow more individuals to qualify. 

The lifetime learning credit

  • allows a maximum tax benefit up to $2,000 per tax return, per year, no matter how many students qualify 
  • is available for all years of postsecondary education and for courses to acquire or improve job skills 
  • is available for an unlimited number of tax years 

To be eligible to claim the lifetime learning credit, a taxpayer or a dependent must receive a Form 1098-T from an eligible educational institution. 

To qualify for the lifetime learning credit, the student must be enrolled in a post-secondary educational institution for one or more courses. The student need not be pursuing a degree or other recognized credential. Instead, the course may be eligible to claim if it is taken by the student to improve or even acquire job skills. 

The tax credit equals 20% of up to $10,000 of qualified tuition and related expenses paid by a taxpayer during the tax year. The maximum credit of $2,000 is reduced for taxpayers with modified adjusted gross income (MAGI) above certain limits. Under the Consolidated Appropriations Act, 2021, the thresholds are now in line with those used for the American Opportunity credit. 

The credit begins to phase out for taxpayers with MAGI over $160,000, if married filing jointly ($80,000 for all others) and is completely phased out for taxpayers with MAGI over $180,000, if married filing jointly ($90,000 for all others). The education credits cannot be claimed by an individual who is married filing separately. The threshold amounts for phasing out of the education credits are not indexed for inflation.