Guide to Education Credits: American Opportunity Tax Credit and Lifetime Learning Credit


February 12, 2024
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Guide to Education Credits: American Opportunity Tax Credit and Lifetime Learning Credit

The IRS provides education tax credits to help with the cost of higher education by reducing the amount of tax you owe on your tax bill. In the following guide, find out what you need to know about the American Opportunity Tax Credit (AOTC) and Lifetime Learning Credit (LLC). Read on to learn more. 

American Opportunity Tax Credit (AOTC) 

According to the IRS, the AOTC is a credit for qualified education expenses paid for an eligible student for the first four years of higher education. The credit is worth up to $2,500 per eligible student per year. If the credit brings your tax bill down to zero, then 40 percent of any remaining amount of the credit will be refunded to you (up to $1,000). 

You’re considered to be eligible for the AOTC if you meet the following requirements: 

  • Be pursuing a degree or other recognized education credential
  • Be enrolled at least half time for at least one academic period (such as a quarter, semester, or trimester) beginning in the tax year
  • Not have finished the first four years of higher education at the beginning of the tax year
  • Not have claimed the AOTC for more than four tax years
  • Not have a felony drug conviction at the end of the tax year

In order to claim the AOTC, you must have received Form 1098-T, Tuition Statement, from an eligible educational institution, either domestic or foreign. Generally, students receive Form 1098-T from their school by January 31st. After checking the form to make sure it is correct, you can use it to help figure out the amount of your credit. Once you have calculated your AOTC, you must fill out Form 8863 and attach the completed form to your tax return. 

Income limits for the AOTC are as follows: 

  • To claim the full credit, your modified adjusted gross income (MAGI) must be $80,000 or less ($160,000 or less for married couples filing jointly).
  • To receive a partial credit, your MAGI must be over $80,000 but less than $90,000 (over $160,000 but less than $180,000 for married couples filing jointly). 
  • You are ineligible to claim the credit if your MAGI is over $90,000 ($180,000 for joint filers). 

Now let’s take a look at the Lifetime Learning Credit (LLC).

Lifetime Learning Credit (LLC)

The IRS states that the LLC is a tax credit for qualified tuition and related expenses paid for eligible students enrolled in an eligible educational institution. The credit can help pay for undergraduate, graduate, and professional degree courses, including courses to acquire or improve job skills. Unlike the AOTC, there is no limit on the number of years you can claim the LLC, and it is worth up to $2,000 per tax return. 

You’re considered to be eligible for the LLC if you meet these requirements:

  • You, your dependent, or a third party pay qualified education expenses for higher education.
  • You, your dependent, or a third party pay the education expenses for an eligible student enrolled at an eligible educational institution. 
  • The eligible student is yourself, your spouse, or a dependent you listed on your tax return. 

An eligible student, according to the IRS, must:

  • Be enrolled or taking courses at an eligible educational institution.
  • Be taking a higher education course or courses to get a degree or other recognized education credential or to get or improve job skills.
  • Be enrolled for at least one academic period (such as a quarter, semester, or trimester) beginning in the tax year. 

As with the AOTC, in order to claim the LLC, you must have received Form 1098-T, Tuition Statement from an eligible educational institution. Once you use Form 1098-T to calculate the amount of your tax credit, then you must complete Form 8863 and attach the completed form to your Form 1040 or Form 1040-SR. 

Unlike the AOTC, the LLC is nonrefundable, so you can use the credit to reduce your tax bill, but you will not receive any remaining amount of the credit back as a refund. 

The MAGI limits for the LLC are the same as those for the AOTC. 

Check out this handy reference chart to compare the similarities and differences between the AOTC and LLC.

It is very important that you make sure you are eligible for either the AOTC or LLC before you claim the credits. Make sure you keep copies of all the documents you used to find out if you qualify and determine the amount of your credit. If the IRS audits your tax return and finds your claims are incorrect and you don’t have proper documentation, then you will be required to pay back the amount of the credit you received with interest. Additional fines and penalties may apply. 

We always recommend working with a qualified tax accountant to ensure accuracy when claiming tax credits and deductions. The tax experts at Honest Buck can help you determine your eligibility for credits and deductions, as well as ensure proper tax filing.  

Contact us today. 


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