Tuition Expenses: How to Claim Tax Credits

The U.S. tax code includes several provisions designed to alleviate the costs of higher education. These tax benefits can help make college or vocational training more accessible by reducing a taxpayer’s liability.

Defining Qualified Education Expenses

To use education tax benefits, you must understand the definitions the Internal Revenue Service (IRS) uses. Benefits are only available for payments made to an eligible educational institution. This includes any accredited public, non-profit, or private for-profit postsecondary institution eligible to participate in U.S. Department of Education student aid programs, which encompasses most colleges, universities, and vocational schools.

An eligible student is one enrolled for at least one academic period, such as a semester or quarter, beginning in the tax year. For certain benefits, the student must be pursuing a degree or another recognized education credential. The specific enrollment status required, such as being enrolled at least half-time, can vary depending on the tax credit being claimed.

Qualified education expenses are amounts paid for tuition and fees required for enrollment or attendance. For example, a mandatory technology fee or a lab fee for a specific science course would be a qualified expense. However, many costs are excluded, such as expenses for room and board, insurance, medical costs, transportation, and other personal living expenses.

Available Tax Credits and Deductions

The tax code provides two primary tax credits for higher education: the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). The AOTC is targeted toward expenses for the first four years of postsecondary education. To be eligible, the student must be pursuing a degree, be enrolled at least half-time for one academic period, and not have a felony drug conviction. The credit is calculated as 100% of the first $2,000 of qualified expenses and 25% of the next $2,000, for a maximum annual credit of $2,500 per student. The AOTC is also partially refundable, as up to 40% of the credit ($1,000) can be received as a refund even if the taxpayer owes no tax.

The Lifetime Learning Credit has broader applicability and can be used for undergraduate, graduate, and professional courses to acquire or improve job skills. There is no limit on the number of years the LLC can be claimed. The credit is calculated as 20% of the first $10,000 in qualified education expenses, making the maximum credit $2,000 per tax return, not per student. The LLC is nonrefundable, meaning it can reduce a taxpayer’s liability to zero, but no portion of it will be refunded beyond that.

Both credits are subject to income limitations based on Modified Adjusted Gross Income (MAGI). For 2025, both the AOTC and LLC begin to phase out for single filers with a MAGI between $80,000 and $90,000, and for joint filers with a MAGI between $160,000 and $180,000. A taxpayer can only claim one of these credits per student in a given tax year. A separate benefit is the student loan interest deduction, which allows for a deduction of up to $2,500 in interest paid on a qualified student loan. For 2025, this deduction is gradually reduced for single filers with a MAGI between $85,000 and $100,000 and for joint filers with a MAGI between $170,000 and $200,000. This is an “above-the-line” deduction, meaning it can be taken even if the taxpayer does not itemize.

Expenses paid with tax-free distributions from a 529 plan or a Coverdell Education Savings Account cannot be used to claim the AOTC or LLC. This rule prevents what is known as “double-dipping” on tax benefits. A family might strategically pay for $4,000 of expenses out-of-pocket to maximize the AOTC and use 529 funds for the remaining costs like room and board.

Information and Documents Needed to Claim Benefits

Educational institutions are required to send Form 1098-T, Tuition Statement, by January 31 to students for whom they have received payments for qualified tuition. This form provides the total amount of payments received for qualified tuition in Box 1 and the amount of scholarships or grants in Box 5.

The amounts reported on Form 1098-T may not represent the full amount of qualified expenses a taxpayer can claim. The AOTC allows for the inclusion of costs for books, supplies, and equipment needed for a course of study, even if they were not purchased directly from the institution. For the Lifetime Learning Credit, these materials only qualify if they must be paid to the institution as a condition of enrollment or attendance. Therefore, it is important to collect and keep receipts for these purchases, as these records serve as proof of payment for expenses not reflected on the 1098-T.

The right to claim the credit belongs to the person who claims the student as a dependent on their tax return. If a parent claims their child as a dependent, only the parent can claim the AOTC or LLC, even if the student paid the expenses.

How to Claim Education Tax Benefits

The AOTC and LLC are claimed using Form 8863, Education Credits, which must be completed and attached to your annual Form 1040 tax return. The form guides you through the calculation for each credit. You will use your financial records and Form 1098-T to enter the student’s information, the institution’s details, and the total qualified expenses paid. The calculation on the form also accounts for your Modified Adjusted Gross Income to determine the final allowable credit amount.

After calculating the credit on Form 8863, the result is carried over to your Form 1040, where it directly reduces your total tax liability.

For those who have paid student loan interest, the deduction is claimed on a different part of the return. The student loan interest deduction is reported on Schedule 1 (Form 1040), Additional Income and Adjustments to Income. The total interest paid, up to the $2,500 limit, is entered on the designated line, which reduces your adjusted gross income.