Disclaimer: I am not a certified public accountant, nor am I affiliated with the Internal Revenue Service (IRS) in any way. My reason for writing this article is to provide college taxpayers with hope of navigating a tax burden while struggling with the cost of educational expenses.
An education tax credit is a tax benefit designed by the United States government to reduce the income taxes you owe while you tackle the cost of higher education. Unlike a deduction, which lowers the income you are taxed on, a credit reduces your tax bill dollar-for-dollar. In some cases, you may even receive a refund if the credit exceeds what you owe.
There are two kinds of federal education tax credits available. While you can claim both on one tax return (if you have multiple students), you can claim only one type of credit per student in a single year:
- American Opportunity Tax Credit (AOTC):
- Value: Allows you to claim up to $2,500 per eligible student.
- Eligibility: Available only for the first four years of post-secondary education for students pursuing a degree. The student must be enrolled at least half-time.
- Expenses: Covers tuition, required enrollment fees, and course materials (books, supplies, and equipment). Notably, these materials qualify even if purchased from outside vendors, such as online retailers or second-hand shops.
- Refundability: Up to 40% of the credit (maximum of $1,000) may be refundable, depending on your age and income.
Note: Students with a federal or state felony drug conviction at the end of the tax year are ineligible for this specific credit.
- Lifetime Learning Credit (LLC):
- Value: Up to $2,000 per tax return (calculated as 20% of up to $10,000 in expenses).
- Eligibility: Available for undergraduate, graduate, and professional degree courses, as well as courses taken to improve job skills. There is no limit on how many years you can claim it.
- Expenses: Covers tuition and mandatory enrollment fees. Books and supplies only count if they are required to be paid directly to the school as a condition of enrollment.
- Refundability: This credit is non-refundable; it can bring your tax bill to zero, but it will not result in a refund check.
General Requirements and Limitations
To claim either credit, you generally must receive Form 1098-T from an eligible school and file an IRS Form 8863 with your return. You generally cannot claim these credits if your filing status is Married Filing Separately.
Both credits are subject to income limits. For the current tax year, the credit begins to decrease if your Modified Adjusted Gross Income (MAGI) is over $80,000 ($160,000 for joint filers) and disappears entirely at $90,000 ($180,000 for joint filers).
Note: While the maximum credit amounts are generally stable, the income eligibility limits are subject to inflation adjustments. Always refer to the IRS website to confirm this year’s specific income thresholds.
Finally, remember that you cannot “double dip.” You cannot use the same educational expenses to claim both a credit and another tax benefit, such as a tax-free withdrawal from a 529 plan. Neither credit covers personal costs like room and board, insurance, medical expenses, and transportation.
Important information for international students or residents using an ITIN (Individual Taxpayer Identification Number): Starting in 2026, the IRS generally requires a valid Social Security Number for the student to be eligible for these credits
Source:
—Kenneth Sullivan.