The Internal Revenue Service (IRS) offers two education tax credits for taxpayers to choose from when filing federal income taxes. Tax credits directly reduce the amount of money you have to pay in income tax, and in some cases, provide a refund above that amount. If you did not work and have no tax liability, you will only be able to get part of one of the credits.
Your tax liability is the amount of income tax that you need to pay the IRS based on your income for the year. You must pay tax not only on the income you earn, but also on some types of unearned income. Therefore, if you did not work but had passive income from investments or other sources, you might have tax liability. You must fill out Form 1040 or another tax form to find out if you have any tax liability for the year.
American Opportunity Credit
The American Opportunity Credit provides up to $2,500 for paying for an undergraduate student's tuition. The credit is partially refundable, meaning that you might be able to get 40 percent of the tax credit even if you have no tax liability. The credit is for the first $2,000 of tuition you paid, plus 25 percent of the next $2,000. After you calculate the amount of the credit, multiply it by 0.4 to find out how much is refundable. The other 60 percent of the credit can only be used to offset your tax liability. If your parents can claim you as a dependent, the credit is not refundable at all.
Lifetime Learning Credit
The Lifetime Learning Credit is available for undergraduates who have already completed four years of college and for graduate students and students who are not pursuing a degree. You can claim a credit of 20 percent of the first $10,000 of tuition and fees you paid. However, the credit is not refundable at all, which means that you can only use it to reduce your tax liability. If you don't work and don't have any other taxable income, you will not be able to use the Lifetime Learning Credit.
If you did not work at all, you might qualify as someone else's dependent. If someone paid for at least half of your living expenses during the year, this person might be able to claim an exemption for you on his tax return. When someone claims you as a dependent, you cannot claim the tax credit at all. However, this person might be able to claim an education tax credit based on any of your tuition that he paid. Talk to the person who is claiming you about getting a tax credit for paying your tuition.