What an education tax credit is

An education tax credit is a dollar-for-dollar reduction in the federal income tax you owe, based on money you spent on may have access to education costs. Unlike a deduction (which reduces the income that gets taxed), a credit directly lowers your tax bill. If you paid $2,500 in may have access to tuition and fees and you claim a $2,500 credit, your tax liability drops by $2,500.

The federal government offers two main education credits: the American Opportunity Tax Credit and the Lifetime Learning Credit. Each has different rules about who can claim it, what expenses count, and how much you can reduce your taxes. You cannot claim both credits for the same student in the same year, so you need to know which one gives you the bigger benefit.

Key Takeaways

  • Education tax credits reduce your federal tax bill dollar-for-dollar for may have access to tuition, fees, and course materials, but not room and board or student loans.
  • The American Opportunity Credit covers up to $2,500 per student per year for the first four years of undergraduate study, while the Lifetime Learning Credit covers up to $2,000 per tax return regardless of how many years the student has attended.
  • You must have earned income and file a federal tax return to claim either credit, and income limits explore — if you earn above a certain threshold, the credit phases out or disappears entirely.
  • The student must be enrolled at least half-time in a degree or certificate program at an accredited school, and you must have paid the expenses yourself or be claimed as a dependent on someone else's return.
  • Some education expenses paid with student loans, grants, or scholarships reduce the amount you can claim, so you need to know what money came from where.

The American Opportunity Tax Credit

The American Opportunity Credit is worth up to $2,500 per student per year and is available only for the first four years of undergraduate study (or the first four years of a student's post-secondary education). To claim it, the student must be enrolled at least half-time in a degree or certificate program at an accredited college, university, or vocational school.

may have access to expenses include tuition, fees, and course materials (books, supplies, equipment) required for enrollment or attendance. Room and board, transportation, and student health insurance do not count. If the student received a grant or scholarship that paid for these expenses, you subtract that amount from what you can claim. The same applies if the student took out a loan — the credit is based on what you actually paid out of pocket or with your own money.

The American Opportunity Credit is partially refundable, meaning if the credit is larger than the tax you owe, you may receive up to 40 percent of the unused credit (up to $1,000) as a refund. This makes it more valuable than the Lifetime Learning Credit for many families.

The Lifetime Learning Credit

The Lifetime Learning Credit is worth up to $2,000 per tax return per year, regardless of how many students you are supporting or how many years they have been in school. Unlike the American Opportunity Credit, there is no limit on the number of years you can claim it — a student can use it for undergraduate, graduate, or professional degree programs.

The student does not have to be enrolled full-time or pursuing a degree. You can claim the Lifetime Learning Credit for someone taking a single course to improve job skills, or for a graduate student in any year of their program. may have access to expenses are the same: tuition, fees, and course materials required for enrollment.

The Lifetime Learning Credit is not refundable, so it can only reduce your tax bill to zero. If you owe $1,200 in taxes and claim a $2,000 Lifetime Learning Credit, your tax bill becomes zero, but you do not receive the extra $800.

Income limits and phase-out ranges

Both credits begin to phase out (reduce) when your modified adjusted gross income (MAGI) exceeds a certain threshold. The threshold varies by filing status and changes each year. For the 2023 tax year, the American Opportunity Credit phases out between $80,000 and $90,000 for single filers and between $160,000 and $180,000 for married couples filing jointly. The Lifetime Learning Credit phases out between $80,000 and $90,000 for single filers and between $160,000 and $180,000 for married couples filing jointly.

If your income falls within the phase-out range, the credit reduces by 25 percent for every $1,000 (or fraction thereof) over the lower threshold. If your income exceeds the upper threshold, you cannot claim the credit at all. The IRS publishes updated thresholds each year, so check the current year's limits before you file.

What counts as a may have access to expense

may have access to education expenses are limited to tuition, fees, and course materials (textbooks, supplies, and equipment) that are required for enrollment or attendance at an accredited school. The school must be may be able to access to participate in federal student loan programs.

Expenses that do not count include room and board, transportation, student health insurance, loan fees, and personal expenses. If the student received a scholarship, grant, or employer reimbursement that paid for any of these expenses, you must subtract that amount from the total before calculating your credit. For example, if tuition was $5,000 and a scholarship paid $2,000, only $3,000 counts as a may have access to expense.

How to claim the credit on your tax return

You claim an education credit by filing Form 1040 or Form 1040-SR and completing Form 8863 (Education Credits). Form 8863 walks you through the rules for each credit and helps you determine which one gives you the larger benefit. You enter the student's name, Social Security number, and the may have access to expenses paid during the tax year.

If you use tax preparation software, it will typically ask you questions about education expenses and automatically calculate which credit you should claim. If you file by hand, you must complete Form 8863 yourself and attach it to your return. The IRS website has a worksheet to help you figure out which credit is better for your situation.

You must file a federal income tax return to claim either credit, even if you would not otherwise be required to file. The student does not have to file their own return if they have no tax liability, but you must report their information on your return.

When you cannot claim the credit

You cannot claim an education credit if the student is not a U.S. citizen, national, or resident alien with a valid Social Security number. You also cannot claim it if the student is not enrolled at least half-time (for the American Opportunity Credit) or if they are not enrolled in an accredited program.

If the student received a grant or scholarship that covered all may have access to expenses, there is nothing left to claim a credit on. If your income exceeds the phase-out range, you are not may be able to access. If someone else claims the student as a dependent on their tax return, you cannot claim the credit — only the person who claims the dependent can claim the education credit for that student.

Frequently Asked Questions

Can I claim an education credit if my child gets a scholarship?

Yes, but only for the expenses the scholarship did not cover. If your child received a $3,000 scholarship and tuition was $5,000, you can only claim a credit based on the $2,000 you paid out of pocket. Scholarships that pay for room and board do not reduce the credit because room and board is not a may have access to expense anyway.

What if my student is in graduate school?

You cannot claim the American Opportunity Credit for graduate students — it is limited to the first four years of undergraduate study. You can claim the Lifetime Learning Credit for graduate students in any year of their program, up to $2,000 per tax return per year.

Do student loan payments count as a may have access to expense?

No. Student loan payments made after you graduate do not count. The credit is based on tuition and fees paid while the student is enrolled. Interest paid on student loans is a separate deduction, but it is not an education credit.

Can I claim a credit if I paid tuition with a student loan?

Yes. The credit is based on tuition you paid, regardless of whether you paid it with your own money, a loan, or a grant. What matters is that you paid a may have access to expense. However, if a grant or scholarship paid for the same expense, you must subtract that amount.

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

If your income exceeds the phase-out range, you cannot claim either credit. There is no workaround, but you may be able to claim the student loan interest deduction (up to $2,500 per year) if the student has federal or private student loans.