How to Calculate the Lifetime Learning Credit

The Lifetime Learning Credit (LLC) is a nonrefundable tax credit available for qualified tuition and related expenses paid for eligible students. This credit helps cover the costs of undergraduate, graduate, and professional degree courses. Unlike some other education credits, there is no limit on the number of years the LLC can be claimed. The credit can be used to offset any tax you owe, but you will not receive any portion of it back as a refund.

Determining Your Eligibility

To claim the Lifetime Learning Credit, the taxpayer, student, and income must meet IRS criteria. The person claiming the credit cannot be a dependent on another’s tax return; if the student is a dependent, the individual who claims them is eligible to claim the credit. A restriction on filing status is that taxpayers who are married but file separate returns are not eligible for the LLC.

The student for whom the expenses were paid must be taking courses at an eligible educational institution. This includes most public and private colleges and universities eligible to participate in federal student aid programs. The coursework must be part of a program to earn a degree or another recognized education credential, or it must be to acquire or improve job skills. The student must be enrolled for at least one academic period that begins during the tax year.

Income limitations determine eligibility. For the 2024 tax year, the credit is gradually reduced for taxpayers with a Modified Adjusted Gross Income (MAGI) between $80,000 and $90,000 for single filers, or $160,000 and $180,000 for those married filing jointly. If your MAGI exceeds these upper limits, you cannot claim the credit. MAGI is your adjusted gross income with certain items added back.

Identifying Qualifying Education Expenses

Qualifying education expenses are composed of tuition and fees required for enrollment or attendance at an eligible educational institution. Certain costs are explicitly excluded, such as room and board, student health insurance fees, medical expenses, transportation, and other personal living costs.

Educational institutions issue a Form 1098-T, Tuition Statement, which reports qualified tuition payments. While this form is a primary document, the figure in Box 1 may not represent the final amount you can use. You are responsible for tracking the actual amounts paid during the year and reconciling them with the 1098-T. Payments made in one year for an academic period that begins in the first three months of the next year can be claimed on the prior year’s tax return.

Step-by-Step Calculation of the Credit

The first step is to sum all qualifying tuition and fee payments made during the tax year for all eligible students in the household. This includes payments made by the taxpayer, their spouse, or a dependent for whom you claim the credit. The credit is calculated per tax return, not per student.

Next, apply the expense limit. The credit is calculated on the first $10,000 of combined qualifying expenses for all students on the tax return. The maximum expense base is $10,000, even if your total payments exceed this amount.

The third step is to calculate the tentative credit. The credit is 20 percent of qualifying education expenses, up to the $10,000 maximum, for a maximum tentative credit of $2,000. For example, if you had $7,000 in qualifying expenses, your tentative credit would be $1,400 ($7,000 x 0.20).

If your MAGI falls within the phase-out range, you must determine your income reduction. For 2024, this range is $80,000 to $90,000 for single filers and $160,000 to $180,000 for joint filers. To find your reduction factor, subtract the lower income limit from your MAGI and then divide that result by the size of the phase-out range ($10,000 for single filers, $20,000 for joint filers). A single filer with a MAGI of $85,000 would have a reduction factor of 0.5.

The final step is to calculate your allowable credit. Multiply the tentative credit by the income reduction factor to find the amount of credit to subtract. You then subtract this reduction from your tentative credit to arrive at your final, allowable Lifetime Learning Credit.

How to Claim the Lifetime Learning Credit

To claim the credit, you must use Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits), and attach it to your Form 1040 tax return. You can download Form 8863 and its instructions directly from the IRS website.

You will first enter the student’s name and taxpayer identification number in Part I. For the Lifetime Learning Credit, you will complete the calculations in Part III. This section guides you through entering your qualifying expenses and calculating the final credit after applying any income limitations.

After calculating your final credit on Form 8863, transfer this figure to the specific line for education credits on Schedule 3 (Form 1040), Additional Credits and Payments. Attaching both Form 8863 and Schedule 3 to your Form 1040 ensures the credit is properly applied against your tax liability.