The information in this article is up to date for tax year 2023 (returns filed in 2024).
The cost of attending college courses can be significant, but there are a few tax breaks available to help offset those climbing expenses. Here’s an overview of the education-related tax credits and deductions to know as you head down the path to higher education.
What are education tax credits?
Pursuing higher education can be a rewarding, albeit expensive endeavor. Education credits may assist you in offsetting the cost of higher education by reducing your tax bill. In addition, if the credit reduces your tax liability to zero and its refundable, you may be eligible to receive a refund for the remaining credit amount. The two most common education credits are the American Opportunity Tax Credit and the Lifetime Learning Tax Credit.
What is the American Opportunity Tax Credit (AOTC)?
The AOTC is a tax credit worth up to $2,500 per year for an eligible college student. It is refundable up to $1,000.
If you are a college student filing your own return, you may claim this credit a maximum of four times (i.e. once per year for four years). If you are a parent of a college student, you can take this tax credit four times per eligible dependent.
What is the Lifetime Learning Credit?
The Lifetime Learning Credit is worth up to $2,000 per year for each eligible student. The number of years you can claim the credit is unlimited, and there is no minimum enrollment requirement to qualify for the Lifetime Learning Credit. In other words, you don’t need to be enrolled full-time to be eligible.
If you are a college student and no one is claiming you as a dependent, you can file your own return and take this credit. If you are the parent of a student that you claim as a dependent, you can take this credit on your individual income tax return.
Who qualifies for education tax credits?
When filing your return, you need to choose an education credit to claim – either the Lifetime Learning Credit or American Opportunity Credit – as the IRS does not allow taxpayers to claim both on a single return. Although there are further requirements, all of the following must be true to qualify for either credit:
- The eligible student must be you, your spouse, or a dependent listed on your tax return.
- You, your dependent, or a third party pays qualified education expenses for higher education.
- An eligible student must be enrolled at an eligible educational institution.
Which education credit should I take?
Some students will qualify for the AOTC and the Lifetime Learning Credit, but the IRS won’t let you take both. Typically, undergraduate students who qualify for both credits will take the AOTC because it is worth more and it is refundable.
The Lifetime Learning Credit is best suited for graduate students because there is no limit to the number of years you can claim it. Undergraduate students taking only a few courses are also more likely to take the Lifetime Learning Credit because there is no minimum enrollment requirement.
Can I claim the AOTC (American Opportunity Tax Credit)?
To qualify for the AOTC, a college student must:
- Be pursuing a degree or other recognized education credential
- Be enrolled at least half time for an academic period during the tax year
- Not have finished the first four years of college at the beginning of the tax year
- Not have already claimed the AOTC on four prior tax returns
- Not have a felony drug conviction at the end of the tax year
There is an income threshold for the AOTC. To get the full credit amount, your modified adjusted gross income (MAGI) must be less than $80,000 (or $160,000 if you are married filing jointly). If your MAGI is above $80,000, you will receive a reduced amount, and if it’s over $90,000, you won’t be able to claim the credit at all.
What education expenses qualify for a tax credit?
The education expenses that qualify for these credits include tuition and fees that are required for enrollment. If you are claiming the American Opportunity Tax Credit, you can also count the cost of books, supplies, and other equipment necessary for your course of study.
Costs that do not qualify for a tax credit include room and board, insurance, health fees, transportation, and living expenses.
How do I claim an education credit?
When you file your taxes with TaxSlayer, our software will guide you through the steps for claiming your education tax credit. College students filing a simple tax return may qualify to file a free federal tax return online. With TaxSlayer Simply Free, your education credits and the student loan interest deduction are included.
Learn more: How Do I File My Taxes for Free in 2024?
Who should claim an education credit, the parent or the student?
If you are a college student and no one claims you as a dependent, you can claim the credit. But if you are the parent of a college student who you claim as a dependent, you will take the tax credit for yourself.
Whoever is claiming the credit will need a Form 1098-T from the school that shows how much was paid for tuition and qualified expenses. If you don’t have a 1098-T, you can always request one, but not all schools are required to provide them. If your institution doesn’t send you a 1098-T, you will still need a record of enrollment and what was paid for tuition and expenses.
Do I have to claim the same credit for two different dependents?
No, you don’t have to claim the same credit for two different dependents. Say you have two kids in college. You can claim the AOTC for one dependent and the Lifetime Learning Credit for the other dependent during the same tax year.
Note, you just can’t take both credits for the same dependent.
How much can I deduct for student loan interest?
If you meet all the requirements for the deduction, you may claim up to $2,500 for interest paid on your student loans.
The student loan interest deduction is another tax break offered to college students or parents paying for college. It can be taken in addition to an education tax credit. Learn more about the student loan interest deduction.
Can international students claim education tax credit?
Generally, international students in the U.S. on an F-1 Student Visa will not be eligible to claim education tax credits. In addition, if the taxpayer or spouse on the return was a non-resident alien for any part of the year and did not choose to be treated as a resident alien for tax purposes, education tax credits cannot be claimed.
For more information, visit the IRS questions and answers.
How does the GI Bill affect my education tax credits and deductions?
If you paid for qualified education expenses with a GI bill or other payments from the Department of Veterans Affairs (VA), you shouldn’t claim any deductions or credits for those expenses covered by your tax-free assistance. Only write off expenses that are paid out of pocket.