Paying for college or other education programs can be expensive. Thankfully, the IRS offers two tax credits that might help lower your federal tax bill if you’ve had qualifying education expenses: the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC).
These credits can reduce the amount of tax you owe based on what you paid for tuition, books, and required fees. While they won’t cover all your costs, they can make school more affordable for many students and families.
What Is an Education Tax Credit?
An education tax credit is a benefit that may lower the amount of federal income tax you owe if you’ve paid for certain college or career school expenses. These expenses usually include tuition, required fees, and course materials.
Unlike a tax deduction, which lowers your taxable income, a tax credit reduces your actual tax bill. That means it could save you more money, depending on your situation.
The IRS offers two main education tax credits:
- American Opportunity Tax Credit (AOTC)
- Lifetime Learning Credit (LLC)
Each credit has different rules and benefits, so it’s important to understand how they work before you file your taxes.
American Opportunity Tax Credit (AOTC)
The American Opportunity Tax Credit may help students pay for the first four years of college or another eligible education program. It’s partially refundable, which means you could get some money back even if you don’t owe any taxes.
Who Can Qualify
To qualify for the AOTC, the student must meet all of these requirements:
- Be enrolled at least half-time in a degree or recognized education program
- Be in their first four years of postsecondary education
- Have no felony drug convictions at the end of the tax year
You can claim this credit for the same student up to four times—once per year.
What Expenses Count
You may be able to claim the AOTC for:
- Tuition paid directly to the school
- Required fees for enrollment
- Course materials like books and supplies
Expenses like housing, insurance, and transportation don’t qualify.
How the Credit Works
The AOTC is worth up to $2,500 per student each year:
- 100% of the first $2,000 in qualified expenses
- 25% of the next $2,000
If the credit brings your tax bill to zero, you may still get up to $1,000 back as a refund.
For full eligibility rules, visit the IRS page on AOTC.
Lifetime Learning Credit (LLC)
The Lifetime Learning Credit may help cover education costs beyond the first four years of college. It can also apply to part-time courses, graduate programs, or job training classes. Unlike the AOTC, it’s not refundable—so it can lower your tax bill but won’t lead to a refund if you owe nothing.
Who Can Qualify
You may be eligible for the LLC if:
- You’re enrolled at an eligible school
- The course improves job skills or helps earn a recognized credential
- You or your dependent had qualified education expenses
You don’t have to be working toward a degree, and there’s no limit to how many years you can claim the LLC.
What Expenses Count
Qualified expenses include:
- Tuition paid to the school
- Fees needed to enroll or attend
- Books and materials required for the course
Housing, insurance, and other personal costs don’t qualify.
How the Credit Works
The LLC is worth 20% of the first $10,000 in qualified expenses—up to a maximum of $2,000 per tax return (not per student).
This credit is nonrefundable, so it can reduce how much tax you owe, but it won’t result in a refund.
To learn more, check the IRS guide to the Lifetime Learning Credit.
Key Differences Between the AOTC and LLC
While both education tax credits can help reduce your taxes, they work differently. Here’s a quick breakdown:
| Feature | American Opportunity Tax Credit (AOTC) | Lifetime Learning Credit (LLC) |
| Maximum Credit | Up to $2,500 per eligible student | Up to $2,000 per tax return |
| Refundable? | Yes, up to $1,000 | No |
| Years You Can Claim It | First 4 years of postsecondary school | Unlimited |
| Enrollment Requirement | At least half-time | Any enrollment level |
| Degree Required? | Yes, must be working toward a degree | No degree requirement |
| Qualified Expenses | Tuition, fees, required materials | Tuition, fees, required materials |
Choosing between the two depends on your education level, enrollment status, and the number of years you’ve already claimed the AOTC.
How to Claim Education Tax Credits
If you paid for college or other eligible education expenses, here are the steps to claim the AOTC or LLC on your tax return:
1. Get Form 1098-T
Your school should send you Form 1098-T. This form lists what you paid in tuition and related expenses. You’ll need it to figure out if you qualify.
2. Fill Out IRS Form 8863
Use IRS Form 8863 to claim either the AOTC or LLC. This form helps you calculate the amount of the credit based on your qualified expenses.
3. File Your Tax Return
Attach Form 8863 to your Form 1040 or 1040-SR. Make sure to include accurate information about your education costs and any scholarships or grants received, since those can affect the credit amount.
Common Mistakes to Avoid
Education tax credits can be helpful, but mistakes could delay your refund or reduce your credit. Watch out for these common issues:
Claiming Both Credits for the Same Student
You can’t claim the AOTC and LLC for the same person in the same year. Pick the one that gives you the biggest benefit based on your situation.
Listing the Wrong Dependent Status
Make sure the student is listed correctly on your tax return—either as your dependent or filing on their own. This affects who can claim the credit.
Using Ineligible Expenses
Only tuition, fees, and required course materials count. Costs like room and board, insurance, and transportation don’t qualify.
Forgetting Required Forms
You need Form 1098-T from your school and Form 8863 attached to your tax return. Missing either can hold up your credit.
Wrapping Up
Education tax credits like the AOTC and LLC can help lower the cost of college or other education programs by reducing your tax bill. The AOTC may be a good option if you’re in the first four years of school and enrolled at least half-time. The LLC might work better for part-time or continuing education students since it can be claimed for an unlimited number of years.
Just remember—each credit has its own rules. Understanding what counts as a qualified expense and how to file can help you make the most of these benefits without running into issues.
