Do I need to owe taxes to get the Hope or Lifetime Learning Credit?

Question

I am hoping to claim the hope or Liftime Learning tax credit this tax year as I have been paying tuition for my wife's education. I read somewhere that you need to owe taxes to the IRS in order to get these credits. Does this mean that if my paycheck witholdings exceed my total tax bill (after applying these credits?), I will not receive the credit, or only receive it to the extent I owe?

In that case, should I file a new W-4 and reduce my withholding?

Answer 1

You will be able to claim the Hope or Lifetime Learning Credit, even if you are entitled a refund.  Both credits are used to reduce your tax liability.  Don't forget that books and other items required for the class are deductible as well.

Answer 2

No, you do not have to owe taxes on April 15th to get one of those credits.  You do have to pay taxes to get the credit.

It is what is called a "non-refundable" credit...which means that the hope or lifetime learning credit cannot be what causes the refund.  

So a person (you, for example) who gets SOME of their withholding refunded to them (before applying the education credit) can qualify for the credit.  But if a person gets ALL of their withholding refunded to them (again, before applying the edutation credit) because they didn't earn enough money to owe taxes, that person cannot take the Hope Credit to get even more money back than they paid in during the year.

Hope this helps...

Answer 3

Yes you have to pay tax to receive an education credit, but that has nothing to do with whether or not you have a refund coming.  If they are going to keep any of your withholding, that is tax you are paying.