What Tax Credits Can a Half-Time Student Claim?
Understand how your enrollment status as a half-time student is a key factor in eligibility for education tax credits and can help lower your overall tax bill.
Federal tax credits can reduce the cost of higher education by directly lowering the amount of tax owed. This is a dollar-for-dollar reduction of your tax bill. A student’s enrollment status is a factor in determining eligibility for these benefits, and understanding what qualifies as half-time status is the first step.
Defining Half-Time Student Status for Tax Purposes
The Internal Revenue Service (IRS) does not have a universal definition for a half-time student. Instead, each educational institution sets its own standard for a full-time course load. “At least half-time” is measured against that specific school’s benchmark, which means the number of credits or clock hours required can vary significantly from one school to another.
To determine your status, consult your school’s official standards, which can be found in the course catalog, student handbook, or on its website. The registrar’s office can also confirm your enrollment status for any academic period.
An academic period can be a semester, trimester, quarter, or any other period of study as defined by the school, including a summer session. To qualify for certain credits, a student must be enrolled at least half-time for at least one academic period that begins during the tax year.
Federal Tax Credits for Half-Time Students
Two federal tax credits are available to students: the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). They offer different benefits and have distinct rules. A taxpayer cannot claim both credits for the same student in the same year.
The AOTC provides a maximum annual credit of $2,500 per eligible student. It is calculated as 100% of the first $2,000 in qualified expenses and 25% of the next $2,000. To be eligible, a student must be pursuing a degree, be enrolled at least half-time for one academic period, not have completed the first four years of higher education, and not have a felony drug conviction.
The AOTC is also partially refundable. If the credit reduces your tax liability to zero, 40% of the remaining credit, up to $1,000, can be refunded. For 2024, the credit is phased out for taxpayers with a modified adjusted gross income (MAGI) between $80,000 and $90,000 for single filers, and $160,000 and $180,000 for those married filing jointly.
The Lifetime Learning Credit offers a nonrefundable credit of up to $2,000 per tax return, not per student. The LLC is not limited to the first four years of postsecondary education and can be used for courses to acquire or improve job skills. Unlike the AOTC, the LLC does not have a half-time attendance requirement, making it an option for students taking a single course.
The credit is calculated as 20% of the first $10,000 in qualified education expenses. The income limits for the LLC are the same as the AOTC. The credit phases out for taxpayers with a MAGI between $80,000 and $90,000 ($160,000 and $180,000 for joint filers) in 2024.
Determining Qualified Education Expenses
To calculate either credit, you must identify your qualified education expenses. For both the AOTC and LLC, these expenses include tuition and fees required for enrollment or attendance at an eligible educational institution.
The AOTC allows for a broader range of expenses than the LLC. In addition to tuition and fees, you can include the cost of books, supplies, and equipment needed for a course of study. These materials do not have to be purchased directly from the school to qualify.
Certain costs are excluded from qualified education expenses for either credit. Non-qualifying expenses include:
- Room and board
- Student health fees
- Insurance
- Transportation costs
Personal living expenses, such as rent or groceries, also do not count, even if they are necessary for you to attend school.
How to Claim Education Credits
To claim an education credit, you will need Form 1098-T, Tuition Statement, from the educational institution, which you should receive by January 31. This form reports payments received for qualified tuition in Box 1 and any scholarships or grants in Box 5. The form also indicates if the student was enrolled at least half-time.
The amount in Box 1 of Form 1098-T may not be your total claimable amount. You must use your own financial records to determine the final figure, especially for the AOTC if you include books and supplies not purchased from the school. This information is used to complete Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits).
You must file Form 8863 with your Form 1040 to claim an education credit. On this form, you will enter each student’s information and calculated qualified expenses to determine the amount of your AOTC or LLC. The final credit amount is then transferred to Schedule 3 (Form 1040) to reduce your total tax.