Student Education Tax Credits

There are two major education tax credits available to students to help offset the costs of higher education: The American Opportunity Credit (AOTC) and the Lifetime Learning Credit (LLC). These college tax credits may help save you money on your income tax return. Tax credits are frequently more valuable than tax deductions because they reduce your tax bill dollar-for-dollar while deductions only reduce your taxable income.

Key points:

• Tax credits reduce your taxes dollar-per-dollar; use tax software to help you claim them so you pay less taxes this year.
• You cannot claim the AOTC and LLC for the same student in the same year, but you can claim both if there are more than one student on one return and you are qualified to do so.
• In addition to tax credits, save money on various expenses as a college student by reviewing a collection of money saving tips below.
• The American Opportunity Credit and the Lifetime Learning Credit may help you save on your individual income taxes if you have college expenses - earned income is not a requirement for the American Opportunity Credit.

Education Tax Credits Compared

How do you know which education tax credit you can claim or which benefits you the most? Refer to this simple table for a side-by-side comparison. For specific details, find each section below:

The American Opportunity Credit (AOTC) | The Lifetime Learning Credit (LLC)

These credits can be claimed if you have income and certain qualifying expenses.

What Is Covered?

Certain expenses may qualify you to claim tax savings on your next return; if you are the guardian of a student, you may be able to claim these if you pay for some or all of your dependent's education expenses - or, as a student, you can consider these expenses when figuring your credit.

The American Opportunity Credit is a partially refundable tax credit as it allows for up to 40 percent of the credit as a tax payment if you qualify to claim it for education expenses. This means you may get money back on your taxes as a student.

File your taxes on eFile.com and the application will walk you through claiming this student tax credit as well as any other tax savings you may qualify for. Start free and cancel anytime - there is no commitment, but we are here to provide support and answer questions if you are unsure about filing your taxes. eFile will separately calculate the refundable and nonrefundable portion of your education credits on Form 8863 for you and eFileIT with your return. If your return is not the Free Basic Edition, use this student promo code for 50% off your tax return prep fees: 19edu50

How to Save Money as a College Student

With rising costs of tuition, college students are always looking for ways to save money both on their income tax return and on general daily expenses. If you have debt from student loans, you can write off any interest paid as an above-the-line deduction. Keep up with other details for students and taxes.

As a student, keep track of your spending and find ways to save money during your time at school. When you save enough money, you can pay off your student debt as you attend classes, meaning you will graduate with a smaller burden of debt. See simple tips and ways on saving money during the year:

Work, transportation, and travel Entertainment, technology, and health
Home, shopping, and food Everyday expenses, finances, and more

You can also save money on taxes by keeping track of your spending, understanding your deductions, maximizing tax-free income, and using tax software to claim all credits and deductions you are entitled to.

You can claim tax credits while you're in school that may help pay your taxes if you work while attending school. If you are a dependent on someone else's return, such as a parent, then they can claim you and receive this credit as it may benefit them more. You can obtain your 1098-T form from your school or university and use it to report your school information. The American Opportunity Credit and Lifetime Learning Credit are the two federal tax credits available for students and parents of students.

Because tax credits are more beneficial and take less effort to claim, the IRS has done away with the Tuition and Fees Deduction. This is because that deduction required that the student tracks purchases in order to write off their education expenses whereas claiming a tax credit is much more straight forward. This means you cannot write off a laptop, books, or other educational expense on your return; instead, you can claim a tax credit.

You cannot claim either education tax credit if you are claimed as a dependent on someone's return, if you file as married separately, or if you are a non-resident alien during the year.

See more details on tax benefits for education via IRS Publication 970.

The American Opportunity Credit (Formerly the Hope Credit)

Of the two education credits currently available, the American Opportunity Credit or AOTC is the most valuable. The American Opportunity Credit is an expanded version of the Hope Credit and may get you up to $2,500. Here is what you need to know:

• The American Opportunity Credit applies only to the first four years of post-secondary school education (university, college, vocational school, nonprofit and for-profit institutions). In other words, you cannot claim the AOTC for more than four years.
• You can claim up to $2,500 per eligible student, per year.
• The person in question must be pursuing a degree.
• You, your dependent, or a third party must have paid the education expenses for an eligible student enrolled at an eligible educational institution .
• The credit covers 100% of the first $2,000 of qualified tuition, required fees, and qualified expenses, plus 25% of the next $2,000 (or, $500). You can claim the full American Opportunity Credit if you have at least $4,000 in qualified education expenses.
• 40% of the credit is refundable, so you may receive up to $1,000 per eligible student as a tax refund even if you owe no tax.
• Each student for which you claim the credit must have been enrolled at least half-time for at least one academic period which began during the 2023 tax year.
• The limit on modified adjusted gross income (MAGI) is $160,000 if married filing jointly and $80,000 if single, head of household, or qualifying surviving spouse. You can receive a reduced credit if your income is between $80,000 - $90,000 or $160,000 - $180,000. This means you can not claim the credit if your MAGI is over $90,000 ($180,000 for married filing jointly). Not sure what your filing status is? Use the eFile.com STATucator tool to determine your status by answering a few simple questions.
• You may claim the credit for education expenses you paid for yourself, your spouse, or your qualifying dependent. You may not take the credit for yourself if you are claimed as someone else's dependent.
• Qualified expenses include tuition and required fees, books, supplies, equipment, and other required course materials (but not room and board).
• Any felony drug convictions by the end of the tax year disqualify the student from receiving the American Opportunity Credit. If you have had the AOTC disallowed in a previous year, eFile can help you file Form 8862 for disallowed credits.

In general, the AOTC is the most significant way to save on taxes as a college student pursuing a four-year degree. This credit acts as a tuition tax credit; while it does not get paid in advance, you can claim it on your taxes. When you add your school information to your eFile account, the tax app will determine the best credit for you to claim and apply it to your return. eFile will only claim the credit if you qualify for it based on your entries; sign up for free here.

The Lifetime Learning Credit or LLC

If you, your spouse, or your dependent do not qualify for the American Opportunity Credit, you may still be able to claim the Lifetime Learning Credit, a non-refundable tax credit. Here is what you need to know about this education credit:

• The Lifetime Learning Credit applies to undergraduate, graduate, professional degree courses, and even to post-graduate courses that help improve your job skills. It is claimed on a per return basis, not a per student basis.
• You can claim up to $2,000 per eligible return, per year.
• You, your dependent, or a third party must have paid the education expenses for an eligible student enrolled at an eligible educational institution.
• The credit is available for any and all years of post-secondary education as well as for adult and continuing education courses. There is no limit on how many years you can claim the credit.
• There is no minimum enrollment requirement.
• The amount of your credit will be 20% of the first $10,000 of combined post-secondary tuition and fees you paid, totaling no more than $2,000 (per year, not per student).
• Because the Tuition and Fees Deduction is no longer available, the Lifetime Learning Credit income limitations received an increased value. For the 2023 tax year, the limit on modified adjusted gross income (MAGI) is $180,000 if married filing jointly and $90,000 if single, head of household, or qualifying widow(er). This means you cannot claim the credit if your MAGI is over $90,000 ($180,000 for married filing jointly). Not sure what your filing status is? Use the eFile.com STATucator tool to determine your status by answering a few simple questions.
• The Lifetime Learning Credit is not refundable, so it will not be paid to you in a refund - it simply decreases your tax liability.
• You may claim the credit for qualified expenses you paid for yourself (if you were not claimed as a dependent), your spouse, or your dependent.
• Qualified expenses include tuition and required fees only (room and board is not included).
• Felony drug convictions do not make the student ineligible for the Lifetime Learning Credit.

College Tax Credit Rules, Examples

You cannot claim both the Lifetime Learning Credit and the American Opportunity Credit for the same student in the same year, but you can claim one credit for one student and the other credit for another student or the AOTC for each. Remember that the American Opportunity Credit is generally the more valuable tax credit, but it is only good for the first four years of higher education and has stricter enrollment requirements. If you qualify for the Lifetime Learning Credit, you can claim it any number of years. When you prepare your return on eFile.com, we will help you determine which education credit or deduction you qualify for and which one will be the most beneficial to you. We will then generate the correct forms for you in order to claim the education credit or deduction(s) with your return.

To better understand your taxes, refer to the examples below.

Example 1: You and your spouse have two young adult dependent children enrolled in school pursuing a undergraduate degrees while you are taking online courses for your job. You have a degree from four years of college education. You could claim the American Opportunity Credit for each of your two children and also claim the Lifetime Learning Credit for yourself since you have already completed your first for years of school. You would not be able to claim anything for your spouse if they do not go to school.

Example 2: You have two kids who are enrolled in college at ages 18 and 21. The younger child lives with you and you will claim them as a dependent on your return; the older one lives on their own and works part-time and you will not claim them. When you file your taxes, claim your younger dependent as well as the AOTC on your return while your older dependent files their own tax return and claims the AOTC on their tax return.

To be able to claim the American Opportunity Tax Credit or the Lifetime Learning Credit (LLC), you must have received the Form 1098-T, Tuition Statement, for you or your dependent from an eligible educational institution either in the U.S. or abroad - see details on U.S. citizens earning income abroad. You or your dependent should typically receive the 1098-T form by January 31. When you prepare your return on eFile.com, you will be able to enter the information right from your 1098-T and we will generate the forms necessary to claim either education credit on your tax return.

Eligible Educational Institution

An eligible educational institution is a school offering higher education beyond high school. It is any college, university, trade school, or other post-secondary educational institution eligible to participate in a student aid program run by the U.S. Department of Education. This includes most accredited public, nonprofit and privately-owned–for-profit postsecondary institutions. If you are not sure if your school qualifies, you can ask or see if your school is listed here .

Related Student Tax Topics

• Review our student tax guide.
• Learn about tax deductions for students.
• Find out about tax-free college savings plans.
• Use our free tax tools to calculate taxes or determine eligibility for tax credits.
• Learn about saving money when traveling, living abroad.

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