 Most of this information comes from Publication 970, Tax Benefits for Education, tax year 2022. You can find on the IRS website, irs.gov, irs.gov. Looking at the income tax formula, we're at the bottom where the credits are located. Remember in the first half of the income tax formula is in essence an income statement ending at taxable income similar to the bottom line of a normal income statement, net income. We then calculate the tax on the taxable income not using one rate or a flat tax but rather using the progressive tax system to get to the tax before credits and other taxes. Finally then, we're down to where the credits are at as well as other taxes like self-employment tax and then we apply the payments which might be in the form of withholding or estimated tax payments to get to the tax refund or tax due. Also remember that the credits are similar to deductions and that we'd like them both but if we can get a dollar credit or dollar deduction we would rather have the credit usually because we'll usually get the full benefit of the dollar credit as opposed to the dollar deduction which only reduces the taxable income and our benefit will be dependent upon the tax rate. Also, the credits down below have a non-refundable portion and a refundable portion oftentimes so we break the credits out into non-refundable and refundable. Non-refundable means we can't take the credit liability below zero meaning we're not gonna get a refund if the tax liability goes below zero. The refundable portion means that we can do that resulting in the tax code being used not as a tax system in that case but as a willful or benefit program for that refundable portion of credit. Figuring the credit, noting that we're looking at the lifetime learning education credit. There's two major education credits the other one being the American Opportunity Credit our thought process generally being one, can I qualify for the education credit? If I cannot, then two, I'm gonna default to the second credit that being the lifetime learning credit which is our focus here. In other words, the qualifications to be able to get the American Opportunity Credit are more restrictive than the qualifications to be able to get the lifetime learning credit. So now we're figuring the lifetime learning credit the general assumption is that we couldn't qualify for the American Opportunity Credit we talked about the American Opportunity Credit in prior presentations. All right, the amount of the lifetime learning credit is 20% of the first $10,000 of qualified education expenses you paid for all eligible students. So we've talked about what does it mean to be an eligible student? What are the education expenses? Once we have the education expenses that's where we're at now to calculate the credit and if we take 20% of the 10,000, 10,000 is the cap of those education expenses times 0.2 we have a $2,000 credit, the maximum amount of the credit. Now the American Opportunity Credit you'll recall the maximum amount was $2,500. It was also easier to get to that 2,500 maximum amount for the American Opportunity Credit because you only needed basically 4,000 in order to maximize the qualified education expenses to get there and the things that qualified for the education expenses were a bit more encompassing than what qualifies for the lifetime learning qualified education expenses. So here you gotta have a pretty hefty number of the $10,000 qualified education expenses in order to maximize the potential credit at the $2,000. Okay, so the maximum amount of lifetime learning credits you can claim for 2022 is 2,000. That's 20% of 10,000. However, that amount may be reduced based on your MAGI that's the modified adjusted gross income, the income phase out which is generally not on gross income but the adjusted gross income with the slight modification which is usually due to like foreign income type of thing. So it could be lower than that based on the income level. See effect of the amount of your income on amount of credit later. All right, example. Bruce and Tani are married and file a joint tax return for 2022. Their MAGI, modified AGI is 75,000. So that's below the threshold to basically be phasing out. Tani is attending a local college, an eligible educational institution to earn credits toward a degree in nursing. Tani already has a bachelor's degree in history and wants to become a nurse. In August, 2022, Tani paid $5,000 of qualified education expenses for the fall 2022 semester. Bruce and Tani can claim a $1,000 which is 20% of that 5,000. Remember that she would have to get up to the 10,000 in order to max out the credit at the 2,000. So they get the 1,000 lifetime learning credit on their 2022 joint tax return. So the reason we're not at the maximum of 2,000 in this case is not due to the income threshold it being phased out because of a higher income but rather because we didn't get to the maximum of 10,000 qualified expenses to maximize the calculation of 20% of that. All right, so form 1098T to help you figure your lifetime learning credit the student made receive form 1098T generally an eligible education institution such as a college or university must extend form 1098T. So if you don't get the 1098T then you wanna talk to the college or university. So or acceptable substitute to each enrolled student by January 31st, 2023. So it should get their first month of the following tax year. So an institution will report payments received box one for qualified education expenses. However, the amount on form 1098T might be different from what you paid when figuring the credit use only the amounts you paid or are deemed to have paid in 2022 for qualified education expenses.