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 Credit (AOTC)
Eligibility:
- You are in the first four years of higher education.
- 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 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 ($180,00 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.
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).
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
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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 2023 | 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 2023 | Available for one or more courses |
| Felony drug conviction | Students must have no felony drug convictions as of the end of 2023 | 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 2023 for academic periods beginning in 2023 or the first 3 months of 2024 |
| 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 |
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