How to Claim Your Education Tax Credit

The U.S. tax code provides tax credits to help offset the costs of higher education. These credits are a direct, dollar-for-dollar reduction of your tax liability, potentially increasing your refund or lowering the amount of tax you owe. Claiming these benefits involves determining your eligibility, gathering the correct documents, and accurately reporting the information on your tax return.

Determining Your Eligibility for an Education Credit

Two primary credits are available for higher education expenses: the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). To claim either credit, you cannot be claimed as a dependent on someone else’s return. Your tax filing status also matters; you generally cannot claim these credits if your status is married filing separately.

For the AOTC, the student must meet several requirements, and the credit can only be claimed for the same student for a maximum of four tax years. To qualify, the student must:

• Be pursuing a degree or other recognized education credential.
• Be enrolled at least half-time for at least one academic period beginning in the tax year.
• Not have finished the first four years of higher education at the beginning of the tax year.
• Not have a felony drug conviction.

The LLC has broader eligibility requirements and is available for individual courses taken to acquire job skills, even if not part of a degree program. There is no limit on the number of years you can claim the LLC for a student. Additionally, there is no half-time enrollment requirement, and a prior felony drug conviction does not disqualify the student.

For both credits, qualified expenses include tuition and fees required for enrollment at an eligible educational institution. The AOTC also allows for expenses for books, supplies, and equipment, even if not paid to the school. For the LLC, these materials only count if they must be purchased from the institution as a condition of enrollment.

Both credits have income limitations based on your modified adjusted gross income (MAGI). For tax year 2025, the full credit is available if your MAGI is $80,000 or less ($160,000 for married filing jointly). The credit is gradually reduced for MAGI between $80,001 and $90,000 ($160,001 and $180,000 for joint filers) and is unavailable if your MAGI is over these upper limits.

Information and Documents Needed to Claim the Credit

The primary document needed is Form 1098-T, Tuition Statement, which educational institutions send to students by January 31. This form reports the payments received for qualified tuition and related expenses in Box 1. It also shows the amount of scholarships or grants in Box 5.

The amounts on Form 1098-T may not represent your total claimable expenses, as Box 1 can include non-qualified costs like room and board. You must reconcile the form with your financial records to determine the correct amount of qualified expenses.

You must also collect receipts for qualified expenses not reported on Form 1098-T. For those claiming the AOTC, this includes receipts for required books, supplies, and equipment purchased from vendors other than the school.

This gathered information is used to complete Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits). This is the specific IRS form used to calculate your credit. Part III of the form requires you to enter the student’s name and taxpayer identification number, as well as the institution’s name and employer identification number (EIN) from Form 1098-T. Based on which credit you are eligible for, you will complete either Part I for the AOTC or Part II for the LLC, entering the total qualified education expenses you paid.

Step-by-Step Guide to Claiming the Credit on Your Tax Return

After completing Form 8863, you transfer the calculated credit amount to Schedule 3 (Form 1040), Additional Credits and Payments. If you are claiming the AOTC, a portion of your credit may be refundable. This refundable amount is also calculated on Form 8863 and entered directly on Form 1040.

You must attach the completed Form 8863 to your Form 1040. Failing to include Form 8863 with your return will result in the disallowance of your education credit.

When you file your return, tax preparation software or e-filing will automatically attach Form 8863 to your electronic submission. For those filing by mail, you will need to physically arrange your forms in the correct order and mail the entire package to the appropriate IRS service center.

Keep a copy of your entire tax return, including Form 8863 and all supporting documents like Form 1098-T and receipts. Retain these records for at least three years from the filing date, which is the general period the IRS has to audit a return.