The information in this article is up to date for tax year 2023 (returns filed in 2024).
Forking over thousands of dollars to cover college expenses can be a hard pill to swallow but it does have its perks. Aside from the degree you’ll eventually earn, your expenses may qualify you for an education credit at tax time. Tax credits reduce the amount of taxes you owe and can help you walk away with a bigger refund.
American Opportunity Tax Credit
Are you an undergrad student? If so, you may qualify for the American Opportunity Tax Credit (AOTC). This credit is worth up to $2,500 for students who paid for tuition, books and other related expenses. The best part is if you don’t owe any taxes, you can receive up to $1,000 back as a refund. To qualify, eligible students must:
- Be working towards an associates, bachelors or another recognized credential
- Be in their first four years of study
- Attend at least part-time for one semester
- Have not claimed the American Opportunity Tax Credit more than four years
- Have no prior felony drug convictions
To claim the full credit, your modified adjusted gross income (or your parents if they’re paying your education bills) must be less than $80,000 ($160,000 if filing a joint return).
Lifetime Learning Credit
The Lifetime Learning Credit is worth up to $2,000 for students who paid for tuition and other related expenses at a qualified institution. Unlike the AOTC, the Lifetime Learning Credit can be claimed whether you’re pursuing a degree or just taking a few courses to boost your job skills. There’s also no limit on the amount of times the credit can be claimed. To qualify, eligible students must be:
- Enrolled or taking classes at an eligible school for at least one semester
- Working towards a degree or looking to improve job skills
To claim the full credit, your modified adjusted gross income must be less than $80,000 ($160,000 if filing a joint return).
You can’t claim both
Even if you qualify for both education credits, you can only claim one on your tax return. Don’t worry, ezTaxReturn makes the decision easy. Just use us to do your taxes and we’ll help you choose the best education credit for your situation.
How to claim education credits
Early in the year, your school will send you a Form 1098-T, Tuition Statement reporting any payments they received for qualified expenses as well as scholarship or grant information. Some eligible expenses such as the cost of textbooks may not be reflected on the 1098 tuition form but feel free to add them in when you prepare your tax return. Please note, there are some expenses you cannot claim. Room and board, transportation, insurance premiums and living expenses all fall into this category.
Once you have this information, use IRS form 8863 to calculate your both the American Opportunity Tax Credit and Lifetime Learning Credit.
Ready to file your taxes online?
The articles and content published on this blog are provided for informational purposes only. The information presented is not intended to be, and should not be taken as, legal, financial, or professional advice. Readers are advised to seek appropriate professional guidance and conduct their own due diligence before making any decisions based on the information provided.
