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Www. Www.my freetax.com my freetax. Www.my freetax.com com 3. Www.my freetax.com   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. Www.my freetax.com They are the American opportunity credit and the lifetime learning credit. Www.my freetax.com This chapter discusses the lifetime learning credit. Www.my freetax.com The American opportunity credit is discussed in chapter 2, The American Opportunity Credit . Www.my freetax.com 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. Www.my freetax.com What is the tax benefit of the lifetime learning credit. Www.my freetax.com   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. Www.my freetax.com There is no limit on the number of years the lifetime learning credit can be claimed for each student. Www.my freetax.com   A tax credit reduces the amount of income tax you may have to pay. Www.my freetax.com Unlike a deduction, which reduces the amount of income subject to tax, a credit directly reduces the tax itself. Www.my freetax.com The lifetime learning credit is a nonrefundable credit. Www.my freetax.com 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. Www.my freetax.com   Your allowable lifetime learning credit may be limited by the amount of your income and the amount of your tax. Www.my freetax.com Can you claim more than one education credit this year. Www.my freetax.com   For each student, you can elect for any year only one of the credits. Www.my freetax.com 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. Www.my freetax.com   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. Www.my freetax.com   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. Www.my freetax.com 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. Www.my freetax.com Differences between the American opportunity and lifetime learning credits. Www.my freetax.com   There are several differences between these two credits. Www.my freetax.com 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. Www.my freetax.com 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. Www.my freetax.com 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. Www.my freetax.com Overview of the lifetime learning credit. Www.my freetax.com   See Table 3-1, Overview of the Lifetime Learning Credit for the basics of the lifetime learning credit. Www.my freetax.com The details are discussed in this chapter. Www.my freetax.com 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. Www.my freetax.com Who Can Claim the Credit Generally, you can claim the lifetime learning credit if all three of the following requirements are met. Www.my freetax.com You pay qualified education expenses of higher education. Www.my freetax.com You pay the education expenses for an eligible student. Www.my freetax.com The eligible student is either yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. Www.my freetax.com Table 3-1. Www.my freetax.com 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. Www.my freetax.com 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. Www.my freetax.com “Qualified education expenses” are defined later under Qualified Education Expenses . Www.my freetax.com “Eligible students” are defined later under Who Is an Eligible Student . Www.my freetax.com A dependent for whom you claim an exemption is defined later under Who Can Claim a Dependent's Expenses . Www.my freetax.com 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. Www.my freetax.com Who Cannot Claim the Credit You cannot claim the lifetime learning credit for 2013 if any of the following apply. Www.my freetax.com Your filing status is married filing separately. Www.my freetax.com You are listed as a dependent on another person's tax return (such as your parents'). Www.my freetax.com See Who Can Claim a Dependent's Expenses , later. Www.my freetax.com Your modified adjusted gross income (MAGI) is $63,000 or more ($127,000 or more in the case of a joint return). Www.my freetax.com MAGI is explained later under Effect of the Amount of Your Income on the Amount of Your Credit . Www.my freetax.com 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. Www.my freetax.com More information on nonresident aliens can be found in Publication 519. Www.my freetax.com You claim the American Opportunity Credit (see chapter 2) or a Tuition and Fees Deduction (see chapter 6) for the same student in 2013. Www.my freetax.com 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. Www.my freetax.com 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. Www.my freetax.com 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. Www.my freetax.com Academic period. Www.my freetax.com   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. Www.my freetax.com 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. Www.my freetax.com Paid with borrowed funds. Www.my freetax.com   You can claim a lifetime learning credit for qualified education expenses paid with the proceeds of a loan. Www.my freetax.com 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. Www.my freetax.com Treat loan disbursements sent directly to the educational institution as paid on the date the institution credits the student's account. Www.my freetax.com Student withdraws from class(es). Www.my freetax.com   You can claim a lifetime learning credit for qualified education expenses not refunded when a student withdraws. Www.my freetax.com 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. Www.my freetax.com The course must be either part of a postsecondary degree program or taken by the student to acquire or improve job skills. Www.my freetax.com Eligible educational institution. Www.my freetax.com   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. Www.my freetax.com S. Www.my freetax.com Department of Education. Www.my freetax.com It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Www.my freetax.com The educational institution should be able to tell you if it is an eligible educational institution. Www.my freetax.com   Certain educational institutions located outside the United States also participate in the U. Www.my freetax.com S. Www.my freetax.com Department of Education's Federal Student Aid (FSA) programs. Www.my freetax.com Related expenses. Www.my freetax.com   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. Www.my freetax.com Prepaid expenses. Www.my freetax.com   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. Www.my freetax.com See Academic period , earlier. Www.my freetax.com 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). Www.my freetax.com 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). Www.my freetax.com In the following examples, assume that each student is an eligible student at an eligible educational institution. Www.my freetax.com Example 1. Www.my freetax.com   Jackson is a sophomore in University V's degree program in dentistry. Www.my freetax.com 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. Www.my freetax.com Because the equipment rental fee must be paid to University V for enrollment and attendance, Jackson's equipment rental fee is a qualified expense. Www.my freetax.com Example 2. Www.my freetax.com   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. Www.my freetax.com 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. Www.my freetax.com Charles bought his books from a friend, so what he paid for them is not a qualified education expense. Www.my freetax.com Donna bought hers at College W's bookstore. Www.my freetax.com 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. Www.my freetax.com Example 3. Www.my freetax.com   When Marci enrolled at College X for her freshman year, she had to pay a separate student activity fee in addition to her tuition. Www.my freetax.com 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. Www.my freetax.com No portion of the fee covers personal expenses. Www.my freetax.com Although labeled as a student activity fee, the fee is required for Marci's enrollment and attendance at College X. Www.my freetax.com Therefore, it is a qualified expense. Www.my freetax.com 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. Www.my freetax.com Claim a lifetime learning credit in the same year that you are claiming a tuition and fees deduction for the same student. Www.my freetax.com Claim a lifetime learning credit and an American opportunity credit based on the same qualified education expenses. Www.my freetax.com 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). Www.my freetax.com 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. Www.my freetax.com 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. Www.my freetax.com See Adjustments to Qualified Education Expenses, next. Www.my freetax.com This image is too large to be displayed in the current screen. Www.my freetax.com Please click the link to view the image. Www.my freetax.com 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. Www.my freetax.com The result is the amount of adjusted qualified education expenses for each student. Www.my freetax.com Tax-free educational assistance. Www.my freetax.com   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. Www.my freetax.com See Academic period , earlier. Www.my freetax.com   Some tax-free educational assistance received after 2013 may be treated as a refund of qualified education expenses paid in 2013. Www.my freetax.com 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). Www.my freetax.com   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. Www.my freetax.com 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. Www.my freetax.com   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. Www.my freetax.com Generally, any scholarship or fellowship is treated as tax free. Www.my freetax.com 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. Www.my freetax.com 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. Www.my freetax.com 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. Www.my freetax.com 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. Www.my freetax.com For examples, see Coordination with Pell grants and other scholarships, later. Www.my freetax.com Refunds. Www.my freetax.com   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. Www.my freetax.com Some tax-free educational assistance received after 2013 may be treated as a refund. Www.my freetax.com See Tax-free educational assistance , earlier. Www.my freetax.com Refunds received in 2013. Www.my freetax.com   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. Www.my freetax.com Refunds received after 2013 but before your income tax return is filed. Www.my freetax.com   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. Www.my freetax.com Refunds received after 2013 and after your income tax return is filed. Www.my freetax.com   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. Www.my freetax.com See Credit recapture, next. Www.my freetax.com Credit recapture. Www.my freetax.com    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. Www.my freetax.com 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. Www.my freetax.com 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). Www.my freetax.com Include that amount as an additional tax for the year the refund or tax-free assistance was received. Www.my freetax.com Example. Www.my freetax.com   You pay $9,300 in tuition and fees in December 2013, and your child began college in January 2014. Www.my freetax.com You filed your 2013 tax return on February 14, 2014, and claimed a lifetime learning credit of $1,860. Www.my freetax.com You claimed no other tax credits. Www.my freetax.com After you filed your return, your child withdrew from two courses and you received a refund of $2,900. Www.my freetax.com You must refigure your 2013 lifetime learning credit using $6,400 of qualified education expenses instead of $9,300. Www.my freetax.com The refigured credit is $1,280 and your tax liability increased by $580. Www.my freetax.com See instructions for your 2014 income tax return to determine where to include this tax. Www.my freetax.com 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. Www.my freetax.com Amounts that do not reduce qualified education expenses. Www.my freetax.com   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. Www.my freetax.com   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. Www.my freetax.com 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. Www.my freetax.com The use of the money is not restricted. Www.my freetax.com For examples, see Adjustments to Qualified Education Expenses in chapter 2, American Opportunity Credit. Www.my freetax.com Coordination with Pell grants and other scholarships. Www.my freetax.com   In some cases, you may be able to reduce your tax liability by including scholarships in income. Www.my freetax.com 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. Www.my freetax.com The scholarship must be one that may (by its terms) be applied to expenses (such as room and board) other than qualified education expenses. Www.my freetax.com Example 1—No scholarship. Www.my freetax.com Judy Green, who is unmarried, is taking courses at a public community college to be recertified to teach in public schools. Www.my freetax.com Her AGI and her MAGI, for purposes of the credit, are $27,000. Www.my freetax.com 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. Www.my freetax.com She claims no credits other than the lifetime learning credit. Www.my freetax.com 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. Www.my freetax.com Judy and the college meet all requirements for the lifetime learning tax credit. Www.my freetax.com She can use all of the $4,500 tuition she paid in 2013 when figuring her 2013 lifetime learning credit. Www.my freetax.com She claims a $900 lifetime learning credit and her tax after credits is $1,256. Www.my freetax.com Example 2—Scholarship excluded from income. Www.my freetax.com The facts are the same as in Example 1—No scholarship, except that Judy was awarded a $1,500 scholarship. Www.my freetax.com Under the terms of her scholarship, it may be used to pay any educational expenses, including room and board. Www.my freetax.com 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. Www.my freetax.com Only $3,000 of the $4,500 tuition she paid in 2013 could be used when figuring her 2013 lifetime learning credit. Www.my freetax.com Her lifetime learning credit would be reduced to $600 and her tax after credits would be $1,556. Www.my freetax.com Example 3—Scholarship included in income. Www.my freetax.com The facts are the same as in Example 2—Scholarship excluded from income. Www.my freetax.com 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. Www.my freetax.com Judy's AGI will increase to $28,500, her taxable income would be $18,750, and her tax before credits would be $2,381. Www.my freetax.com She would be able to use the $4,500 of adjusted qualified education expenses to figure her credit. Www.my freetax.com Judy could claim a $900 lifetime learning credit and her tax after credits would be $1,481. Www.my freetax.com 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. Www.my freetax.com This is true even if the amount must be paid to the institution as a condition of enrollment or attendance. Www.my freetax.com Sports, games, hobbies, and noncredit courses. Www.my freetax.com   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. Www.my freetax.com 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. Www.my freetax.com Comprehensive or bundled fees. Www.my freetax.com   Some eligible educational institutions combine all of their fees for an academic period into one amount. Www.my freetax.com 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. Www.my freetax.com 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. Www.my freetax.com See Figuring the Credit , later, for more information about Form 1098-T. Www.my freetax.com 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). Www.my freetax.com 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. Www.my freetax.com For you to claim a lifetime learning credit for your dependent's expenses, you must also claim an exemption for your dependent. Www.my freetax.com You do this by listing your dependent's name and other required information on Form 1040 (or Form 1040A), line 6c. Www.my freetax.com IF you. Www.my freetax.com . Www.my freetax.com . Www.my freetax.com THEN only. Www.my freetax.com . Www.my freetax.com . Www.my freetax.com 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. Www.my freetax.com The dependent cannot claim the credit. Www.my freetax.com 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. Www.my freetax.com You cannot claim the credit based on this dependent's expenses. Www.my freetax.com Expenses paid by dependent. Www.my freetax.com   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. Www.my freetax.com Include these expenses when figuring the amount of your lifetime learning credit. Www.my freetax.com    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. Www.my freetax.com Expenses paid by you. Www.my freetax.com   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. Www.my freetax.com 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. Www.my freetax.com Expenses paid by others. Www.my freetax.com   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. Www.my freetax.com In this case, the student is treated as receiving the payment from the other person and, in turn, paying the institution. Www.my freetax.com If you claim an exemption on your tax return for the student, you are considered to have paid the expenses. Www.my freetax.com Example. Www.my freetax.com In 2013, Ms. Www.my freetax.com Allen makes a payment directly to an eligible educational institution for her grandson Todd's qualified education expenses. Www.my freetax.com 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. Www.my freetax.com 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. Www.my freetax.com 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. Www.my freetax.com If anyone else claims an exemption for Todd, Todd cannot claim a lifetime learning credit. Www.my freetax.com Tuition reduction. Www.my freetax.com   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. Www.my freetax.com 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. Www.my freetax.com For more information on tuition reductions, see Qualified Tuition Reduction in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Www.my freetax.com 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. Www.my freetax.com The maximum amount of lifetime learning credit you can claim for 2013 is $2,000 (20% × $10,000). Www.my freetax.com However, that amount may be reduced based on your MAGI. Www.my freetax.com See Effect of the Amount of Your Income on the Amount of Your Credit , later. Www.my freetax.com Example. Www.my freetax.com Bruce and Toni Harper are married and file a joint tax return. Www.my freetax.com For 2013, their MAGI is $75,000. Www.my freetax.com Toni is attending a local college (an eligible educational institution) to earn credits toward a degree in nursing. Www.my freetax.com She already has a bachelor's degree in history and wants to become a nurse. Www.my freetax.com In August 2013, Toni paid $5,000 of qualified education expenses for her fall 2013 semester. Www.my freetax.com Bruce and Toni can claim a $1,000 (20% × $5,000) lifetime learning credit on their 2013 joint tax return. Www.my freetax.com Form 1098-T. Www.my freetax.com   To help you figure your lifetime learning credit, the student should receive Form 1098-T. Www.my freetax.com 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. Www.my freetax.com An institution may choose to report either payments received (box 1), or amounts billed (box 2), for qualified education expenses. Www.my freetax.com However, the amounts in boxes 1 and 2 of Form 1098-T might be different from what you paid. Www.my freetax.com When figuring the credit, use only the amounts you paid or are deemed to have paid in 2013 for qualified education expenses. Www.my freetax.com   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. Www.my freetax.com    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. Www.my freetax.com 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). Www.my freetax.com 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). Www.my freetax.com Modified adjusted gross income (MAGI). Www.my freetax.com   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return. Www.my freetax.com MAGI when using Form 1040A. Www.my freetax.com   If you file Form 1040A, your MAGI is the AGI on line 22 of that form. Www.my freetax.com MAGI when using Form 1040. Www.my freetax.com   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. Www.my freetax.com You can use Worksheet 3-1 to figure your MAGI. Www.my freetax.com Worksheet 3-1. Www.my freetax.com MAGI for the Lifetime Learning Credit 1. Www.my freetax.com Enter your adjusted gross income  (Form 1040, line 38)   1. Www.my freetax.com   2. Www.my freetax.com Enter your foreign earned income exclusion and/or housing exclusion (Form 2555, line 45, or Form 2555-EZ, line 18)   2. Www.my freetax.com       3. Www.my freetax.com Enter your foreign housing deduction (Form 2555, line 50)   3. Www.my freetax.com       4. Www.my freetax.com Enter the amount of income from Puerto Rico you are excluding   4. Www.my freetax.com       5. Www.my freetax.com Enter the amount of income from American Samoa you are excluding (Form 4563, line 15)   5. Www.my freetax.com       6. Www.my freetax.com Add the amounts on lines 2, 3, 4, and 5   6. Www.my freetax.com   7. Www.my freetax.com Add the amounts on lines 1 and 6. Www.my freetax.com  This is your modified adjusted  gross income. Www.my freetax.com Enter this amount  on Form 8863, line 14   7. Www.my freetax.com   Phaseout. Www.my freetax.com   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. Www.my freetax.com The same method is shown in the following example. Www.my freetax.com Example. Www.my freetax.com You are filing a joint return with a MAGI of $112,000. Www.my freetax.com In 2013, you paid $6,600 of qualified education expenses. Www.my freetax.com You figure the tentative lifetime learning credit (20% of the first $10,000 of qualified education expenses you paid for all eligible students). Www.my freetax.com The result is a $1,320 (20% x $6,600) tentative credit. Www.my freetax.com 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. Www.my freetax.com The numerator of the fraction is $127,000 (the upper limit for those filing a joint return) minus your MAGI. Www.my freetax.com The denominator is $20,000, the range of incomes for the phaseout ($107,000 to $127,000). Www.my freetax.com The result is the amount of your phased out (reduced) lifetime learning credit ($990). Www.my freetax.com   $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. Www.my freetax.com Enter the credit on Form 1040, line 49, or Form 1040A, line 31. Www.my freetax.com Note. Www.my freetax.com 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. Www.my freetax.com Prev  Up  Next   Home   More Online Publications
 
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Today's IRS Organization

The IRS Restructuring and Reform Act of 1998 prompted the most comprehensive reorganization and modernization of IRS in nearly half a century. The IRS reorganized itself to closely resemble the private sector model of organizing around customers with similar needs.  

To support its structure and ensure accountability, the IRS is divided into three commissioner-level organizations:

Commissioner

Specialized IRS units report directly to the Commissioner's office. The IRS Chief Counsel also reports to the Treasury General Counsel on certain matters.

  • Commissioner, Internal Revenue — John Koskinen
  • Chief of Staff — W. Todd Grams
  • IRS Chief Counsel — William J. Wilkins
  • Taxpayer Advocate Service — Nina E. Olson, National Taxpayer Advocate
  • Appeals — Kirsten Wielobob, Chief
  • Equity, Diversity and Inclusion — Monica Davy, Executive Director 
  • Research, Analysis and Statistics — Rosemary Marcuss, Director
  • Communications and Liaison — Terry Lemons, Chief
  • Office of Compliance Analytics — Dean R. Silverman, Senior Advisor to the Commissioner (Compliance Analytics Initiatives) 

Deputy Commissioner for Services and Enforcement

The Deputy Commissioner reports directly to the Commissioner and oversees the four primary operating divisions and other service and enforcement functions:    

  • Deputy Commissioner for Services and Enforcement — John Dalrymple
  • Wage and Investment Division — Debra Holland, Commissioner
  • Large Business and International Division — Heather Maloy, Commissioner
  • Small Business/Self Employed Division — Karen Schiller, Commissioner
  • Tax Exempt and Government Entities Division — Sunita B. Lough, Commissioner
  • Criminal Investigation — Richard Weber, Chief
  • Return Preparer Office — Carol Campbell, Director
  • Office of Professional Responsibility —Karen L. Hawkins, Director 
  • Office of Online Services — Rajive Mathur, Director
  • Whistleblower Office — Stephen A. Whitlock, Director

Deputy Commissioner for Operations Support

The Deputy Commissioner reports directly to the Commissioner and oversees the integrated IRS support functions, facilitating economy of scale efficiencies and better business practices:

  • Deputy Commissioner for Operations Support — Peggy Sherry
  • Chief Technology Officer — Terence V. Milholland
  • Agency-Wide Shared Services — Dave Grant, Chief
  • Human Capital Officer — David Krieg, Chief
  • Chief Financial Officer — Robin Canady 
  • Privacy, Governmental Liaison and Disclosure — Mary J. Howard, Director

Organization Chart

See the basic structure of today's IRS in this picture of the IRS Organization Chart

At-a-Glance: IRS Divisions and Principal Offices

Get an overview of the four primary operating divisions and the other principal offices in the IRS organization.
 

 

Page Last Reviewed or Updated: 11-Mar-2014

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Www. Www.my freetax.com my freetax. Www.my freetax.com com 10. Www.my freetax.com   Retirement Savings Contributions Credit (Saver's Credit) Table of Contents Full-time student. Www.my freetax.com Adjusted gross income. Www.my freetax.com Distributions received by spouse. Www.my freetax.com Testing period. Www.my freetax.com If you or your employer make eligible contributions (defined later) to a retirement plan, you may be able to take a credit of up to $1,000 (up to $2,000 if filing jointly). Www.my freetax.com This credit could reduce the federal income tax you pay dollar for dollar. Www.my freetax.com Can you claim the credit?   If you or your employer make eligible contributions to a retirement plan, you can claim the credit if all of the following apply. Www.my freetax.com You are not under age 18. Www.my freetax.com You are not a full-time student (explained next). Www.my freetax.com No one else, such as your parent(s), claims an exemption for you on their tax return. Www.my freetax.com Your adjusted gross income (defined later) is not more than: $59,000 for 2013 ($60,000 for 2014) if your filing status is married filing jointly, $44,250 for 2013 ($45,000 for 2014) if your filing status is head of household (with qualifying person), or $29,500 for 2013 ($30,000 for 2014) if your filing status is single, married filing separately, or qualifying widow(er) with dependent child. Www.my freetax.com Full-time student. Www.my freetax.com   You are a full-time student if, during some part of each of 5 calendar months (not necessarily consecutive) during the calendar year, you are either: A full-time student at a school that has a regular teaching staff, course of study, and regularly enrolled body of students in attendance, or A student taking a full-time, on-farm training course given by either a school that has a regular teaching staff, course of study, and regularly enrolled body of students in attendance, or a state, county, or local government. Www.my freetax.com You are a full-time student if you are enrolled for the number of hours or courses the school considers to be full-time. Www.my freetax.com Adjusted gross income. Www.my freetax.com   This is generally the amount on line 38 of your 2013 Form 1040 or line 22 of your 2013 Form 1040A. Www.my freetax.com However, you must add to that amount any exclusion or deduction claimed for the year for: Foreign earned income, Foreign housing costs, Income for bona fide residents of American Samoa, and Income from Puerto Rico. Www.my freetax.com Eligible contributions. Www.my freetax.com   These include: Contributions to a traditional or Roth IRA, Elective deferrals, including amounts designated as after-tax Roth contributions, to: A 401(k) plan (including a SIMPLE 401(k)), A section 403(b) annuity, An eligible deferred compensation plan of a state or local government (a governmental 457 plan), A SIMPLE IRA plan, or A salary reduction SEP, and Contributions to a section 501(c)(18) plan. Www.my freetax.com They also include voluntary after-tax employee contributions to a tax-qualified retirement plan or a section 403(b) annuity. Www.my freetax.com For purposes of the credit, an employee contribution will be voluntary as long as it is not required as a condition of employment. Www.my freetax.com Reducing eligible contributions. Www.my freetax.com   Reduce your eligible contributions (but not below zero) by the total distributions you received during the testing period (defined later) from any IRA, plan, or annuity included earlier under Eligible contributions. Www.my freetax.com Also reduce your eligible contributions by any distribution from a Roth IRA that is not rolled over, even if the distribution is not taxable. Www.my freetax.com      Do not reduce your eligible contributions by any of the following: The portion of any distribution which is not includible in income because it is a trustee-to-trustee transfer or a rollover distribution. Www.my freetax.com Any distribution that is a return of a contribution to an IRA (including a Roth IRA) made during the year for which you claim the credit if: The distribution is made before the due date (including extensions) of your tax return for that year, You do not take a deduction for the contribution, and The distribution includes any income attributable to the contribution. Www.my freetax.com Loans from a qualified employer plan treated as a distribution. Www.my freetax.com Distributions of excess contributions or deferrals (and income attributable to excess contributions and deferrals). Www.my freetax.com Distributions of dividends paid on stock held by an employee stock ownership plan under section 404(k). Www.my freetax.com Distributions from an eligible retirement plan that are converted or rolled over to a Roth IRA. Www.my freetax.com Distributions from a military retirement plan. Www.my freetax.com Distributions received by spouse. Www.my freetax.com   Any distributions your spouse receives are treated as received by you if you file a joint return with your spouse both for the year of the distribution and for the year for which you claim the credit. Www.my freetax.com Testing period. Www.my freetax.com   The testing period consists of: The year in which you claim the credit, The 2 years before the year in which you claim the credit, and The period after the end of the year in which you claim the credit and before the due date of the return (including extensions) for filing your return for the year in which you claimed the credit. Www.my freetax.com Example. Www.my freetax.com You and your spouse filed joint returns in 2011 and 2012, and plan to do so in 2013 and 2014. Www.my freetax.com You received a taxable distribution from a qualified plan in 2011 and a taxable distribution from an eligible section 457(b) deferred compensation plan in 2012. Www.my freetax.com Your spouse received taxable distributions from a Roth IRA in 2013 and tax-free distributions from a Roth IRA in 2014 before April 15. Www.my freetax.com You made eligible contributions to an IRA in 2013 and you otherwise qualify for this credit. Www.my freetax.com You must reduce the amount of your qualifying contributions in 2013 by the total of the distributions you and your spouse received in 2011, 2012, 2013, and 2014. Www.my freetax.com Maximum eligible contributions. Www.my freetax.com   After your contributions are reduced, the maximum annual contribution on which you can base the credit is $2,000 per person. Www.my freetax.com Effect on other credits. Www.my freetax.com   The amount of this credit will not change the amount of your refundable tax credits. Www.my freetax.com A refundable tax credit, such as the earned income credit or the additional child tax credit, is an amount that you would receive as a refund even if you did not otherwise owe any taxes. Www.my freetax.com Maximum credit. Www.my freetax.com   This is a nonrefundable credit. Www.my freetax.com The amount of the credit in any year cannot be more than the amount of tax that you would otherwise pay (not counting any refundable credits or the adoption credit) in any year. Www.my freetax.com If your tax liability is reduced to zero because of other nonrefundable credits, such as the education credits, then you will not be entitled to this credit. Www.my freetax.com How to figure and report the credit. Www.my freetax.com   The amount of the credit you can get is based on the contributions you make and your credit rate. Www.my freetax.com The credit rate can be as low as 10% or as high as 50%. Www.my freetax.com Your credit rate depends on your income and your filing status. Www.my freetax.com See Form 8880, Credit for Qualified Retirement Savings Contributions, to determine your credit rate. Www.my freetax.com   The maximum contribution taken into account is $2,000 per person. Www.my freetax.com On a joint return, up to $2,000 is taken into account for each spouse. Www.my freetax.com   Figure the credit on Form 8880. Www.my freetax.com Report the credit on line 50 of your Form 1040 or line 32 of your Form 1040A, and attach Form 8880 to your return. Www.my freetax.com Prev  Up  Next   Home   More Online Publications