What educational tax credits actually do

Educational tax credits reduce the amount of federal income tax you owe — they are not deductions, and they are not refunds of tuition you already paid. A credit directly lowers your tax bill dollar for dollar. If you owe $2,000 in taxes and you have a $1,500 credit, you owe $500. Some credits are refundable, meaning if the credit is larger than what you owe, the government sends you the difference. Others are non-refundable, meaning the credit can reduce your tax to zero but not below it.

The IRS offers two main educational credits: the American Opportunity Tax Credit and the Lifetime Learning Credit. Each one has different rules about who can claim it, what expenses count, and how much money you get back. You cannot claim both credits for the same student in the same tax year, so you have to choose which one works better for your situation.

Key Takeaways

  • The American Opportunity Tax Credit covers up to $2,500 per student per year for the first four years of college, and up to $1,000 of it may be refunded to you even if you owe no taxes.
  • The Lifetime Learning Credit covers up to $2,000 per tax return (not per student) for any level of education after high school, but it is non-refundable.
  • You must have a Form 1098-T from the school showing may have access to education expenses, and your income cannot exceed the IRS limits for that year.
  • Expenses that count include tuition and required fees, but not room, board, books, or transportation unless they are included in the school's cost of attendance.
  • You claim the credit on your federal tax return using Form 8863, and the school must be accredited and may be able to access for federal student aid.

American Opportunity Tax Credit: the larger credit for early college years

The American Opportunity Tax Credit is worth up to $2,500 per student per year and covers the first four years of post-secondary education. You can claim it for each student in your household who meets the requirements, so if you have two children in college, you could claim up to $5,000 total. The credit is partially refundable: if the credit exceeds your tax liability, you may receive up to $1,000 as a refund.

To claim this credit, the student must be enrolled at least half-time in a degree or certificate program, and the school must be accredited and may be able to access for federal student aid programs. The student cannot have a felony drug conviction. Your modified adjusted gross income (MAGI) must be below $80,000 if you file as single, $160,000 if you file as married filing jointly, or $80,000 if you file as head of household. These income limits change each year.

The credit covers 100 percent of the first $2,000 in may have access to expenses and 25 percent of the next $2,000, for a maximum of $2,500. may have access to expenses are tuition, required fees, and course materials (books, supplies, equipment) that the student needs to purchase from the school or elsewhere. Room and board do not count, even if the student lives on campus.

Lifetime Learning Credit: for any education after high school

The Lifetime Learning Credit is worth up to $2,000 per tax return per year and can be claimed for any post-secondary education or job training, not just degree programs. You can use it for undergraduate, graduate, or professional degree courses. You can also use it for courses taken to improve job skills, even if they do not lead to a degree. Unlike the American Opportunity Credit, there is no limit to how many years you can claim it.

The credit is non-refundable, which means it can reduce your tax bill to zero but will not result in a refund if the credit is larger than what you owe. Your MAGI must be below $59,000 if you file as single, $118,000 if you file as married filing jointly, or $59,000 if you file as head of household. These thresholds also change yearly.

The credit equals 20 percent of up to $10,000 in may have access to expenses per tax return, for a maximum of $2,000. Unlike the American Opportunity Credit, the Lifetime Learning Credit does not require the student to be enrolled half-time or pursuing a degree. The student does not need to be your dependent, and you can claim the credit for yourself if you are taking courses.

Income limits and phase-outs

Both credits begin to phase out at specific income levels and disappear entirely at higher thresholds. The IRS uses your modified adjusted gross income (MAGI) to determine whether you can claim the full credit, a reduced credit, or no credit at all. MAGI is usually your adjusted gross income (AGI) with certain deductions added back in; for most people, it is the same as AGI.

For the American Opportunity Credit in 2024, the phase-out begins at $80,000 MAGI for single filers and $160,000 for married filing jointly. For the Lifetime Learning Credit, it begins at $59,000 for single filers and $118,000 for married filing jointly. If your income falls within the phase-out range, the credit is reduced by 25 percent for each $1,000 (or fraction thereof) over the threshold. The IRS publishes updated income limits each year on its website and in the tax instructions.

If you are married and file separately, neither of you can claim either credit. If your income exceeds the upper limit for the phase-out, you cannot claim the credit at all that year.

What counts as a may have access to education expense

may have access to expenses are narrow: tuition, required fees, and course materials that the student must purchase to enroll in or attend courses. Course materials include books, supplies, and equipment such as computers or lab equipment, but only if they are required by the school and purchased from the school or a vendor the school designates. If you can buy the materials anywhere, they still count.

Expenses that do not count include room and board, transportation, insurance, medical expenses, and personal living expenses. Student loan interest does not count. Fees for activities, athletics, or student services do not count unless they are required of all students and included in the school's cost of attendance. If the school includes books or supplies in a flat cost-of-attendance figure and you cannot separate them out, you can count the portion the school attributes to them.

The expenses must be paid in the tax year you claim the credit, and they must be for education in that same year or the first three months of the following year. If you pay tuition in December for a January course, you can claim it in the year you paid it.

How to claim the credit on your tax return

You claim educational tax credits on Form 8863 (Education Credits), which you attach to your federal income tax return. Before you fill out Form 8863, you need a Form 1098-T from the school showing the may have access to education expenses paid in that tax year. The school is required to send this form by January 31 if you paid may have access to expenses.

On Form 8863, you enter the student's name and Social Security number, the school's name and employer identification number (EIN), the amount of may have access to expenses, and your MAGI. The form walks you through calculating the credit and determining whether it is refundable. If you have multiple students, you file a separate Form 8863 for each one (or use the continuation sheet on the back of the form).

You cannot claim a credit for a student who is your dependent if that student claims themselves as a dependent on their own return. You also cannot claim a credit if the student received a scholarship or grant that paid for the same expenses you are using to calculate the credit — you must reduce the expenses by the amount of the scholarship first.

When you cannot claim both credits for the same student

You can claim only one credit per student per tax year. If you have two students, you can claim the American Opportunity Credit for one and the Lifetime Learning Credit for the other. But for a single student, you must choose. Most families benefit more from the American Opportunity Credit because it is larger and partially refundable, but the Lifetime Learning Credit may be better if the student is in graduate school, taking only a few courses, or in a non-degree program.

If you claimed the American Opportunity Credit for a student in years one through four of their education, you can switch to the Lifetime Learning Credit in year five or later. You cannot claim both in the same year for the same student, even if you file an amended return.

Frequently Asked Questions

Can I claim a credit if my child got a scholarship?

You can claim a credit, but you must subtract the scholarship amount from the may have access to expenses first. If the scholarship covered all expenses, there is nothing left to claim a credit on. If the scholarship covered only part of the expenses, you can claim a credit on the remainder.

What if the school did not send me a Form 1098-T?

Contact the school's financial aid office and ask them to issue one. You need it to claim the credit. If the school cannot locate your records, ask them for a written statement of the may have access to expenses you paid, and keep receipts or cancelled checks showing payment. You can file your return without the form, but you may face delays or requests for documentation from the IRS.

Can I claim a credit for my adult child if they are not my dependent?

No. Only the person who paid the may have access to expenses can claim the credit, or a dependent of that person. If your adult child paid their own tuition, they claim the credit on their own return. If you paid it and they are not your dependent, you cannot claim it.

Do I have to use the credit in the year I paid the expenses?

Yes. You claim the credit in the tax year the expenses were paid, not the year the courses were taken. If you pay tuition in December 2024 for a January 2025 course, you claim the credit on your 2024 return.

What if my income is too high to claim the credit?

If your MAGI exceeds the phase-out range, you cannot claim the credit that year. Some families reduce their MAGI by contributing to a traditional IRA or 401(k) to bring themselves below the threshold, but this strategy requires careful planning with a tax professional.