What educational tax credits do

Educational tax credits reduce the federal income tax you owe if you or a dependent paid tuition, fees, or related expenses at an accredited college, university, or vocational school. Instead of deducting the cost from your income (which lowers your taxable income), a credit subtracts directly from your tax bill dollar-for-dollar. A $1,000 credit means you owe $1,000 less in federal tax.

The IRS offers two main educational credits: the American Opportunity Tax Credit and the Lifetime Learning Credit. They cover different situations and have different limits, so most filers can use only one per student per year. Some credits are partially refundable, meaning if the credit is larger than your tax bill, the IRS may send you the difference as a refund.

Key Takeaways

  • The American Opportunity Tax Credit covers up to $2,500 per student per year for the first four years of undergraduate study, and up to 40 percent of it may be refunded to you even if you owe no tax.
  • The Lifetime Learning Credit covers up to $2,000 per tax return (not per student) for any level of education or training at an accredited school, with no limit on how many years you can claim it.
  • You must have paid the education expenses yourself, claimed the student as a dependent, or the student paid them with money you gave them, and the student must be enrolled at least half-time for the American Opportunity Credit.
  • You cannot claim both credits for the same student in the same year, and your income may reduce or eliminate your credit if it exceeds the IRS limits for your filing status.
  • You report educational credits on Form 8863 and attach it to your federal tax return; the IRS will not send you a separate notice that you are may have access to to one.

The American Opportunity Tax Credit

The American Opportunity Tax Credit is the larger of the two credits and is designed for students in their first four years of undergraduate study. It covers up to $2,500 per student per year for tuition, fees, and course materials (books, supplies, equipment). Room and board do not count, and neither do expenses paid with scholarships or grants that were not taxed to the student.

The credit is partially refundable: if your tax bill is smaller than the credit, the IRS refunds up to 40 percent of the credit (a maximum of $1,000) even if you owe no federal tax. This makes it more valuable than the Lifetime Learning Credit for many families. However, your income must fall below certain thresholds. For the 2024 tax year, the credit begins to phase out at $80,000 of modified adjusted gross income for single filers and $160,000 for married couples filing jointly, and disappears entirely at $90,000 and $180,000 respectively.

The student must be enrolled at least half-time in a degree or certificate program at an accredited institution. Graduate students do not may have access to, and neither do students taking only a single course or two.

The Lifetime Learning Credit

The Lifetime Learning Credit is smaller but more flexible. It covers up to $2,000 per tax return (not per student) for tuition and fees at any accredited college, university, or vocational school. Unlike the American Opportunity Credit, there is no limit on how many years you can claim it, and the student does not have to be pursuing a degree—you can use it for a single course, a professional certification, or job training.

The Lifetime Learning Credit is not refundable, so it can only reduce your tax bill to zero; any excess is lost. Your income also phases it out, beginning at $80,000 for single filers and $160,000 for married couples filing jointly, and disappearing at $90,000 and $180,000 respectively (the same thresholds as the American Opportunity Credit for the 2024 tax year).

Because the credit is per tax return rather than per student, if you have two children in college, you can claim only $2,000 total, not $2,000 per child. This is why many families with multiple students in school use the American Opportunity Credit instead, which allows $2,500 per student.

What expenses count and what do not

Both credits cover tuition and required fees charged by the school. They also cover course materials—textbooks, supplies, and equipment—if the school requires you to buy them from the school or if you buy them separately and the school requires them for enrollment. A laptop counts if the school requires it for coursework; a general-purpose computer does not.

Expenses that do not count include room and board, transportation, insurance, medical expenses (even if required by the school), and personal expenses. If you pay tuition with a student loan, the tuition itself still counts for the credit—the loan is just how you paid for it. However, if you pay with a scholarship or grant that was not taxed to the student, that portion of tuition does not count.

The school must be accredited by an agency recognized by the U.S. Department of Education. Most colleges and universities are; some online schools and vocational programs are not. You can check the school's accreditation status on the Department of Education website or ask the school directly.

Income limits and how they affect your credit

Both credits phase out (gradually reduce) as your modified adjusted gross income rises. For the 2024 tax year, the American Opportunity and Lifetime Learning Credits both begin to phase out at $80,000 for single filers and $160,000 for married couples filing jointly. The credit disappears entirely at $90,000 for single filers and $180,000 for married couples.

If your income falls in the phase-out range, you calculate the reduction based on how far above the threshold you are. The IRS provides a worksheet in the Form 8863 instructions to do this. If your income exceeds the upper limit, you cannot claim either credit that year, though you may be able to claim it in a future year if your income drops.

Modified adjusted gross income is usually your adjusted gross income (AGI) from your tax return, but for these credits it may include certain foreign income or exclusions. Check the Form 8863 instructions for your specific situation.

Who can claim the credit and who cannot

You can claim an educational credit if you paid the education expenses yourself, or if you claimed the student as a dependent on your tax return. If the student paid the expenses with their own money (from a job, savings, or a loan in their name), you cannot claim the credit even if you claimed them as a dependent—the person who paid counts as the taxpayer for credit purposes.

The student must be a U.S. citizen, national, or resident alien. They do not have to be your child; you can claim the credit for a grandchild, niece, nephew, or unrelated dependent if you paid the expenses and claimed them as a dependent. However, you and the student cannot both claim the credit for the same expenses in the same year.

If the student received a scholarship or grant, you can still claim the credit for any expenses the scholarship did not cover. For example, if tuition is $10,000 and a scholarship paid $6,000, you can claim the credit on the remaining $4,000 if you paid it.

How to report the credit on your tax return

You report educational credits on Form 8863, which you attach to your federal tax return. The form asks for the student's name, Social Security number, the school's name and employer identification number (EIN), the amount of may have access to education expenses you paid, and whether you are claiming the American Opportunity or Lifetime Learning Credit.

You can find the school's EIN on the school's website, in correspondence from the school, or by calling the school's financial aid office. If you cannot find it, you can search the IRS Tax Exempt Organization Search tool online. Form 8863 also includes a worksheet to calculate the credit if your income is in the phase-out range.

File Form 8863 with your federal tax return (Form 1040). If you use tax software, it will usually walk you through the questions and generate the form automatically. If you file by paper, you must include the form or the IRS will not process your credit claim.

Frequently Asked Questions

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

No. You can claim only one credit per student per tax year. If you have two students, you could claim the American Opportunity Credit for one and the Lifetime Learning Credit for the other, but not both for the same person. Choose the credit that gives you the larger benefit.

What if my child received a scholarship that covered all their tuition?

If the scholarship covered all may have access to expenses, you have no remaining expenses to claim the credit on, so you cannot claim it that year. If the scholarship covered tuition but your child paid for books and supplies separately, you can claim the credit on those expenses.

Do I need to keep receipts or documentation to claim the credit?

You do not need to attach receipts to your tax return, but you should keep them for your records in case the IRS asks. The IRS may request proof that you paid the expenses and that the student was enrolled. Keep tuition bills, receipts, 1098-T forms from the school, and enrollment verification.

What is a 1098-T form and do I need it to claim the credit?

A 1098-T is a form the school sends you showing may have access to education expenses paid during the year. Schools are required to send it if you paid more than $600 in may have access to expenses. You do not need the 1098-T to claim the credit, but it is helpful documentation. If the school did not send one and you paid expenses, you can still claim the credit with your own records.

Can I claim an educational credit if the student is not my dependent?

No. You must have claimed the student as a dependent on your tax return to claim the credit, even if you paid all the expenses. The only exception is if the student paid the expenses themselves—then they can claim the credit on their own return regardless of whether you claimed them as a dependent.