A 1098-T can increase your refund, but only if you have a tax liability to reduce

The 1098-T form reports education expenses you paid during the year. When you report these expenses on your tax return, they reduce the income the IRS taxes you on — which can lower the tax you owe and increase your refund. But the amount of refund increase depends on which education credit you claim and whether you have enough tax liability for that credit to work.

The two main education credits are the American Opportunity Tax Credit and the Lifetime Learning Credit. The American Opportunity credit can give you up to $2,500 per student per year, and part of it (up to $1,000) is refundable — meaning you can get money back even if you owe no tax. The Lifetime Learning Credit gives up to $2,000 per return but is not refundable, so it only helps if you owe taxes. Which credit you use, and which expenses count, determines whether the 1098-T actually increases your refund.

Key Takeaways

  • The American Opportunity Tax Credit is partly refundable and can increase your refund by up to $1,000 even if you owe no federal tax.
  • The Lifetime Learning Credit is not refundable and only reduces taxes you already owe, so it does not increase a refund if you have no tax liability.
  • The 1098-T reports may have access to education expenses, but not all education expenses count toward the credits.
  • You must claim the credit on your tax return using Form 8863 — receiving the 1098-T does not automatically claim it for you.
  • If your income is too high, you may not be able to claim either credit, even if you have a 1098-T.

When the American Opportunity Credit increases your refund

The American Opportunity Tax Credit is the credit most likely to increase your refund because $1,000 of the $2,500 maximum is refundable. That means if you owe $500 in federal tax and claim $2,500 in American Opportunity credits, the IRS will first use $500 of the credit to wipe out what you owe, then refund you $1,000 of the remaining credit (up to the refundable limit). You walk away with a $1,000 refund instead of owing $500.

To claim the American Opportunity credit, you must have a 1098-T showing may have access to education expenses, and the student must be in their first four years of a degree program at an accredited school. The expenses that count are tuition, fees, and course materials — not room and board, transportation, or health insurance. If the school or the student paid for some of these expenses with scholarships or grants, you subtract that amount from the total before calculating the credit.

When the Lifetime Learning Credit does not increase your refund

The Lifetime Learning Credit is not refundable, which means it can only reduce taxes you owe — it cannot create a refund. If you have no federal tax liability for the year, the Lifetime Learning Credit does nothing for you, even if you have a large 1098-T. You would be better off using the American Opportunity credit if you are may be able to access for it.

The Lifetime Learning Credit covers up to $2,000 per return (not per student) and applies to any post-secondary education at an accredited school, including graduate school and non-degree courses. Like the American Opportunity credit, you must subtract scholarships and grants from the expenses before calculating the credit.

Income limits that can prevent you from using the credit

Both the American Opportunity and Lifetime Learning credits phase out at higher income levels. If your modified adjusted gross income (MAGI) exceeds the limit for your filing status, you cannot claim either credit, even if you have a 1098-T. The income limits change each year and vary by filing status — for example, the limit might be $80,000 for single filers and $160,000 for married filing jointly, but these numbers shift annually.

You can find the current year's income limits on the IRS website or in the instructions for Form 8863, which is the form you use to claim education credits. If your income is close to the limit, it is worth checking before you file, because going over the limit means losing the credit entirely.

How to claim the credit on your tax return

Receiving a 1098-T does not automatically claim the education credit for you. You must report the credit yourself using Form 8863 (Education Credits), which you attach to your federal tax return. On Form 8863, you enter the student's name and Social Security number, the school's name and code, and the may have access to education expenses from the 1098-T (minus any scholarships or grants). You then choose which credit to claim — American Opportunity or Lifetime Learning — and the form calculates how much credit you get.

If you are filing electronically, your tax software will usually walk you through Form 8863 and ask you questions about the student and expenses. If you are filing by hand, you can read Form 8863 from the IRS website. The form itself explains which line goes where, and the instructions clarify which expenses count.

What expenses on the 1098-T actually count

The 1098-T reports what the school says you paid, but not all of it may count toward the education credits. may have access to expenses are tuition and fees required for enrollment or attendance, plus course materials (books, supplies, equipment) if the school requires you to buy them from the school. Room and board, transportation, insurance, and personal expenses do not count, even if you paid them while in school.

If you paid for expenses with a student loan, grant, or scholarship, you cannot count those expenses toward the credit — you can only count what you paid out of pocket. The 1098-T shows what the school received, so you may need to subtract grant or scholarship amounts yourself before you enter the expenses on Form 8863. Some schools break this out on the 1098-T, but not all do, so check your school's records if the 1098-T is unclear.

When you have multiple students or multiple years

If you have more than one student in school, you can claim the American Opportunity credit for each student (up to $2,500 per student), but you can claim the Lifetime Learning Credit only once per return, for a maximum of $2,000 total. This means if you have two students, the American Opportunity credit is usually the better choice if both students are may be able to access.

You can also claim the American Opportunity credit for the same student in multiple years, but only for four years total per student. After that, you can switch to the Lifetime Learning Credit if the student is still in school. Keep track of which years you claimed American Opportunity for each student so you do not exceed the four-year limit.

Frequently Asked Questions

If I get a 1098-T but do not claim the credit, do I still get a refund increase?

No. The 1098-T is just a report of what you paid — it does not automatically claim the credit. You must fill out Form 8863 and choose which credit to claim. If you do not claim it, the IRS will not give you the credit, and your refund will not increase.

Can I claim both the American Opportunity and Lifetime Learning credits in the same year?

No. You must choose one or the other for each student. You can claim American Opportunity for one student and Lifetime Learning for another, but not both for the same person in the same year.

What if the 1098-T shows expenses I did not actually pay?

Contact the school and ask them to issue a corrected 1098-T. Schools sometimes include expenses you did not pay out of pocket, or they may have made a data entry error. You can only claim expenses you actually paid, so make sure the 1098-T is correct before you file.

Does the education credit reduce my taxable income, or does it reduce my tax bill?

The education credits reduce your tax bill directly, not your taxable income. This is more valuable than a deduction, because a credit is a dollar-for-dollar reduction in what you owe, while a deduction only reduces the income that gets taxed.

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

If your MAGI exceeds the limit, you cannot claim the credit that year. Some people reduce their income by contributing to a traditional IRA or 401(k) to get below the limit, but this only works if you have earned income and meet other requirements. Check the Form 8863 instructions for your filing status and income level.