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Educational Credits

Use Form 8863 to figure and claim your education credits, which are based on adjusted qualified education expenses paid to an eligible educational institution (postsecondary). There are two education credits.

• The American opportunity credit, part of which may be refundable.

• The lifetime learning credit, which is nonrefundable.

A refundable credit can give you a refund when the credit is more than the tax you owe, even if you are not required to file a tax return. A nonrefundable credit can reduce your tax, but any excess is not refunded to you. Both of these credits have different rules that can affect your eligibility to claim a specific credit.

You may have received Form 1098-T (Tuition Statement). This form will show the amount of the  tuition that was billed by the institution – and does NOT include all of the other “qualified” expenses (such as books) that you may have paid.

The information on this webpage was taken from other sources at different times. Always check for the most current information on the IRS website (www.irs.gov).   For instance, the Modified Adjusted Gross Income (MAGI) limitation usually increases annually. This limitation can limit or eliminate the deduction or credit for educational expenses.

By the way, the IRS’s position regarding 1098-T is that it is not acceptable documentation for educational expenses.  Some taxpayers mistakenly believe the form serves as a record of educational expenses paid.  However, the form, issued by universities, only documents tuition that the school billed, not what the student paid. Taxpayers who don’t keep good records of their education expenses could be robbing themselves of money.  Therefore, keep evidence (canceled checks, credit card statements, invoices) for educational costs paid during the tax year.

American Opportunity Tax Credit (AOTC)
The American Opportunity Tax Credit is a tax credit to help pay for education expenses paid for the first four years of education completed after high school. You can get a maximum annual credit of $2,500 per eligible student and 40% or $1,000 could be refunded if you owe no tax. This credit is subject to income limitations.

Who is eligible for American Opportunity Tax Credit (AOTC)?
To be eligible for AOTC, the student must:

  • Be you, your spouse or your dependent that you listed on your tax return
  • Be pursuing a degree or other recognized education credential
  • Have qualified education expenses at an eligible educational institution
  • Be enrolled at least half time for at least one academic period beginning in the tax year
  • Not have finished the first four years of higher education at the beginning of the tax year
  • Not have claimed the AOTC or the former Hope credit for more than four tax years
  • Not have a felony drug conviction at the end of the tax year

How do I apply for American Opportunity Tax Credit (AOTC)?
To claim AOTC, you must file a federal tax return, complete theForm 8863 and attach the completed form to your Form 1040 or Form 1040A.

Use the information on the Form 1098-T Tuition Statement, received from the educational institution the student attended. The form includes the institution’s federal identification number, the student’s taxpayer identification number, payments received, amounts billed or refunds made for tuition and related expenses, scholarships administered by the institution, and the student’s enrollment and graduate status.

Lifetime Learning Credit (LLC)
The Lifetime Learning Credit (LLC) is a tax credit used to offset the cost of tuition and related expenses. It can help eligible students pay for undergraduate, graduate and professional degree courses and courses taken to get or improve job skills. There is no limit on the number of years you can claim the credit. The credit is worth up to $2,000 per tax return. The LLC is a nonrefundable credit, which means it can only reduce a person’s tax liability to zero and no part of the credit can be issued as a refund. There are income limitations for this tax credit.

Who is eligible for Lifetime Learning Credit (LLC)?
To be eligible for LLC, the student must:

  • Be yourself, your spouse or a dependent you listed on your tax return
  • Have qualified education expenses at an eligible educational institution
  • Be taking higher education course or courses to get a degree or other recognized education credential or to get or improve job skills
  • Be enrolled for at least one academic period beginning in the tax year

How do I apply for Lifetime Learning Credit (LLC)?
To claim a LLC, you must file a federal tax return, complete theForm 8863, Education Credits (American Opportunity and Lifetime Learning Credits), and attach the completed form to your Form 1040 or Form 1040A.

Modified Adjusted Gross Income Limitation
To claim the full credit for either category, your modified adjusted gross income (MAGI) must be $80,000 or less ($160,000 or less for married filing jointly). You will receive a reduced amount of the credit if your MAGI is over $80,000 but less than $90,000 (over $160,000 but less than $180,000 for married filing jointly).  Above the maximums, no credit is allowed. Finally, married taxpayers must file a JOINT RETURN to claim the credit.