The average cost of attending a four-year college in the U.S. was $36,436 per year as of 2023, according to the Education Data Initiative. Whether you’re a parent who’s paying for a child’s education or a college student paying your own way, education tax credits can ease some of that burden.
The two main education tax credits the Internal Revenue Service allows taxpayers to claim are the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). We’ll cover the rules for claiming these credits and discuss how you can use them to defray the costs of higher education.
What are education tax credits?
Education tax credits are a type of tax credit aimed at providing relief to individuals and families paying for higher education. Unlike a , which lowers your , a tax credit reduces your tax bill dollar for dollar.
You can claim an education tax credit if you’re a college student who’s paying for your own education expenses, provided you aren’t claimed as a tax dependent on someone else’s return. However, if you’re a parent who’s paying college expenses for a dependent child, you — not your child — can claim an education tax credit.
The following income limits apply to both the American Opportunity Tax Credit and the Lifetime Learning Credit for both 2023 and 2024. Income limits are determined by your and based on modified adjusted gross income.
Neither credit is available if your tax filing status is married filing separately.
American Opportunity Tax Credit
How it works: The American Opportunity Tax Credit is an education tax credit that’s worth up to $2,500. Of that, up to $1,000 is refundable, which means you can use that portion to score a bigger .
You can claim up to 100% of the first $2,000 of qualified education expenses through the AOTC, plus 25% of the next $2,000 (or $500) in IRS-approved expenses. That means to max out the $2,500 credit, you’d need to spend at least $4,000 on education for the tax year.
Who can claim it: To claim the AOTC for a student’s education expenses, the student must meet the following eligibility requirements:
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They’re pursuing a college degree or another approved educational credential.
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They’re enrolled in school at least half-time for at least one academic period during the tax year.
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They’ve completed less than four years of higher education at the beginning of the tax year.
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No one has claimed the AOTC or the former Hope credit on their behalf for more than four tax years.
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They don’t have a felony drug conviction at the end of the tax year.
You can only use the American Opportunity Tax Credit to pay for tuition, fees, books, course materials, and equipment that are necessary for the degree program. Other expenses, like room and board and transportation, don’t qualify.
Lifetime Learning Credit
How it works: The Lifetime Learning Credit is an education tax credit that’s worth up to $2,000, or 20% of qualified education expenses up to $10,000. Unlike the AOTC, it’s entirely non-refundable, so you won’t receive any unused portion as a tax refund.
Who can claim it: To claim the LLC for a student’s education expenses, the student must meet the following requirements:
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They’re enrolled in or taking courses at an eligible education institution.
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They’re seeking a degree or another credential, or they’re taking classes to enhance their job skills and opportunities.
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They’re enrolled for at least one academic period during the tax year.
The rules for the Lifetime Learning Credit are more relaxed than the American Opportunity Tax Credit rules in a few respects: While you can’t claim the AOTC for any student for more than four years, there’s no limit on the number of years you can claim the LLC.
You can also use the LLC for undergraduate or postsecondary education expenses, as well as courses that could help you find a job, whereas you can only claim the AOTC for a student who’s completing an undergraduate degree or a similar program. Students can also qualify for the LLC if they have a felony drug conviction.
However, you’re a bit more restricted in terms of what education expenses you can use the LLC for vs. the AOTC. You can use both education tax credits for qualified tuition and required fees, but you can only use the lifetime learning tax credit for books, supplies, and equipment if they’re paid directly to the institution. You can use the American Opportunity Tax Credit to purchase these items even if you go through an off-campus store.
How to claim education credits and rules to know
You can’t claim both credits on the same return for the same student. You also can’t claim an education tax credit if you’ve already gotten a tax break, like a deduction or credit, for a particular education-related expense. Likewise, if you have a scholarship that you don’t need to repay, you can’t claim an education tax credit if the scholarship covers the same expense.
You can, however, claim both the AOTC and LLC on the same tax return for different students. So if you’re a parent who has two children enrolled in a college or university, you could claim the AOTC for one child and the LLC for another, assuming you’re paying for their education.
To claim either education tax credit, you’ll need to use the information on IRS Form 1098-T, which is a statement colleges and universities send to some students that shows how much they (or their families) paid for higher education expenses. You’ll then use Form 8863 to calculate and claim the education tax credit.
Read more: Need more time for your taxes?
Other tax benefits for students
There are a couple of other tax benefits students and their parents should be aware of for tax planning purposes.
Student loan interest deduction
You can deduct up to $2,500 in student loan interest you pay during a tax year, provided that you’re legally obligated to repay the loan. The is subject to annual income limits.
Both federal student loans and private student loans qualify for the deduction. To deduct student loan interest, you must have taken out the loan to pay education expenses for yourself, your spouse, or someone who was your dependent at the time. You aren’t eligible for the deduction if you (or your spouse if you’re married filing a joint return) can be claimed as a dependent by someone else.
529 plans
A 529 plan is an investment account for education. They can be used for college savings or to offset tuition to a private grade school, middle school, or high school.
You’ll never get a tax break on federal income taxes for your contributions to a 529 savings plan, though many states offer tax incentives. But the money grows on a tax-deferred basis. As long as you use the money for qualified education expenses, withdrawals are tax-free at the federal level. Many states don’t impose taxes on education-related distributions, either.
FAQs
Can I take a tax write-off on my child’s college tuition?
You may be eligible for the American Opportunity Tax Credit or Lifetime Learning Credit if you paid your child’s college tuition. Either credit can reduce your tax obligation, and a portion of the AOTC can be issued as a refund. If you’re legally required to pay your child’s student loan, you can also deduct up to $2,500 of student loan interest per year.
Why am I not eligible for the education tax credit?
You may not qualify for an education tax credit if you earn more than the income limits, if you didn’t pay the educational expense you’re claiming the credit for, if someone else can claim you as a dependent for tax purposes, or if your tax filing status is married filing separately.
How many years can you claim an education tax credit?
You can claim the American Opportunity Tax Credit for up to four years on a student’s behalf. There’s no limit on the number of times you can claim the Lifetime Learning Credit for a student’s higher education expenses as long as they meet enrollment requirements.