Education comes with a hefty price, but fortunately, you can get a break with tax credits offered. You may even be eligible to receive a refund if you don’t have tax liability. Let’s review the options, so you can best understand what’s right for you.
Two Types of Education Credits
There are two types of credits to help with the cost of higher education by reducing the amount of tax owed. You can even receive a refund if the credit reduces your tax zero.
American Opportunity Tax Credit (AOTC)
Eligibility:
- You or your dependent must be pursuing a degree or other educational credential.
- You must be enrolled at least half time for at least one academic period in the tax year.
- You have not completed the first four years of higher education at the beginning of the tax year.
- You have not claimed AOTC or the former Hope Credit for more than four tax years.
- You do not have a felony drug conviction at the end of the tax year
- The credit is for qualified expenses such as tuition, fees, and other related expenses for you to enroll.
- For AOTC only, you can include the cost for books, supplies, and equipment needed for a course even if these expenses were not paid to the school.
Credit Amount:
- Up to $2,500 per eligible student. Additionally, 40% of the credit will be refunded to you (up to $1,000) if your credit is more than what you owe.
Phase Out:
- Phase out occurs when modified adjusted gross income (MAGI) is between $80,000 and $90,000 for individual ($160,000 and $180,000 for joint).
- You are not eligible if your MAGI is $90,000 or more ($180,000 filing jointly).
Lifetime Learning Credit (LLC)
Eligibility:
- You or your dependent must be pursuing a degree, other educational credential, or to improve job skills.
- You must be enrolled at least one academic period (defined by the school).
- The credit is for qualified expenses such as tuition, fees, and other related expenses for you to enroll.
Credit Amount:
- A maximum of $2,000 or 20% of the first $10,000 of qualified education expenses.
- Credit is nonrefundable; you will not receive money back if you don’t owe any tax.
Phase Out:
- Phase out occurs when MAGI is between $80,000 and $90,000 for individual ($160,000 and $180,000 for joint).
- You are not eligible if your MAGI is $90,000 or more ($180,00 filing jointly).
Compare Education Credits
| Criteria | American Opportunity Tax Credit (AOTC) | Lifetime Learning Credit (LLC) |
| Maximum benefit | Up to $2,500 credit per eligible student | Up to $2,000 credit per return |
| Refundable or nonrefundable | 40% of credit is refundable | Credit is not refundable |
| Limit on Modified Adjusted Gross Income (MAGI) for married filling jointly | $180,000 | $180,000 |
| Limit on MAGI for single, head of household, or qualifying widow | $90,000 | $90,000 |
| If married, can you file a separate return? | No |
| Dependent status | Cannot claim benefit if someone else can claim you as a dependent on their return |
| Can you or your spouse be a nonresident alien? | No, unless nonresident alien is treated as a resident alien for tax purposes (see Publication 519 for information on nonresident alien status) |
| Number of years of post-secondary education available | Only if student hasn’t completed 4 years of post-secondary education before 2024 | All years of post-secondary education and for courses to acquire or improve job skills |
| Number of years benefit available | 4 tax years per eligible student (includes any years former Hope credit claimed) | Unlimited |
| Type of program required | Student must be pursuing a degree or other recognized education credential | Student does not need to be pursuing a degree or other recognized education credential |
| Number of courses | Student must be enrolled at least half time for at lease one academic period beginning in 2024 | Available for one or more courses |
| Felony drug conviction | Students must have no felony drug convictions as of the end of 2024 | Does not apply
|
| Qualified expenses | Tuition, required enrollment fees and course materials needed for course of study | Tuition and fees required for enrollment or attendance |
| For whom can you claim the benefit | You
Your spouse
Student you claim as a dependent on your return | You
Your spouse
Student you claim as a dependent on your return |
| Who must pay the qualified expenses? | You
Your spouse
Student
Third party* | You
Your spouse
Student
Third party* |
| Payments for academic periods | Made in 2024 for academic periods beginning in 2024 or the first 3 months of 2025 |
| Do I need to claim the benefit on a schedule or form | Yes, Schedule 3 of Form 1040 and Form 8863 Education Credits
Form 8863 Instructions |
| *Third Party | Qualified education expnses paid by a third party for you or a student you claimed as a dependent on your return are considered paid by you for the AOTC and LLC. Payments by third parties include amounts paid by relatives or friends. |
| IRS.gov |
For both AOTC and LLC these expenses do not qualify:
- Room and board
- Insurance
- Medical expenses (including student health fees)
- Transportation and similar living expenses
- Same expenses paid by tax free educational expenses (see below)*
- Same expenses used for any other deduction or credit
- Tax free educational assistance include:
- Tax-free fellowships and scholarships
- Any need-based education grant e.g pell grants
- Assistance from employers
- Veterans’ assistance
- Any other payments that are tax free (excluding gifts or inheritances) for educational assistance
- Exception: Expenses for hobbies, games, or non-credit courses are not eligible for education credits or tuition and fee deduction, except when the course or activity is part of the degree program. For LLC, these expenses are eligible if the course helps acquire or improve job skills.
Adjustments to Qualified Education Expenses
Total Tuition – tax-free education assistance received = expense to calculate credit
Use the IRS interactive tax tool to see if you qualify
Mindful Reminder
Be kind and patient with yourself during tax season. Try to break down the preparation into small steps and combine it with your favorite cup of tea. See it as a learning experience rather than a chore. Understanding tax laws takes time, so give yourself plenty of time to study. Refer to the previous year’s return as a guide and ask questions. The IRS customer service is a great tool. Use a method to center yourself if you become flustered. Then, try again when you are calm.
Free Tax Preparation Resources
New York City offers free tax prep services
- In person help – sit with a volunteer who can help you
- Drop off service – drop off your information and pick up your return later
- Virtual tax prep – go online and someone will help you
- Assisted self-prep – tax prep by yourself or someone will assist you
Create and account with the IRS to access:
- Tax records
- Make or view payments
- View or create payment plans
- View your balance due
- Request account transcript
Need to check your refund status?
Federal refund
- Call: (800) 829-1040
- Callers who deaf or hard of hearing
- TTY/TDD: (800) 829-4059
NY State refund
- Call: (518) 457 5149
- Dial 711 for NY Relay Service
Seeking Help
If you are depressed, anxious, or have panic attacks, find a health professional who can help you.
Substance Abuse and Mental Health Services Administration (SAMHSA) National can provide free referrals. They are open 24/7, 365 days a year.
If you are experiencing suicidal thoughts, please contact 988 for help. The calls are free, confidential, and they are open 24/7 to help you navigate difficult emotions.
Attend a Workshop
If you are interested in attending a live webinar on improving your relationship with money, please visit my events.
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