Education Credits: What They Are & Who Qualifies

September 4, 2025 by Connie
Tax Specialist & Director of Quality Assurance with 15+ years committed to making taxes less stressful and more accessible.

So many people I know including myself have spent so much money putting themselves through college. You can ask anybody I know, when it comes to the IRS offering two different types of education credits. This is because the tax benefits for those who qualify can really help lower your tax amount and for some even get money back! I can honestly say I have taken advantage of both credits, not only for myself, but for my two sons.

The two education credits are American Opportunity Credit and Lifetime Learning Credit. These credits are calculated using Form 8863, Education Credits. You must attach this form to your Form 1040 when claiming either education credit. You can’t claim both credits for the same student in the same year. There are specific rules and criteria that must be met for either credit.

Before discussing who can claim the credits, let's start with who can not cannot claim either Education Credit:

• Anyone who is listed as a dependent on someone else's tax return (e.g., your parent's).
• You are filing "married filing separately."
• You or your spouse were a nonresident alien for any portion of 2024 and did not choose to be treated as a resident alien for tax purposes.
• Returns that have a MAGI of $90,000 or more ($180,000 or more if you file a joint return)
• You did not have a Taxpayer Identification Number (TIN) by the due date of their return, including extensions.

FileYourTaxes.com will take the information entered and it will automatically give the credit with the best tax advantage when a return qualifies for both credits. If not using a software, make sure to check both options to see what credit is better for you specifically.

The American Opportunity Tax Credit (AOTC)

The American Opportunity Credit is partially refundable, the maximum amount of credit is $2,500 per qualifying student. The maximum refundable portion of credit is $1,000. This means any return that has a credit remaining with zero tax balance will get the balance refunded to them!

ALL the following criteria must be met to qualify for American Opportunity Credit.

• Generally to claim the American opportunity credit, the law requires the student to have received Form 1098-T, Tuition Statement.
• This credit has not been claimed (by you or anyone else) for this student for any 4 tax years before.
• Must be enrolled in an eligible institution (most accredited U.S. colleges qualify)
• Enrolled at least half-time for at least one academic period that begins during tax year (ex. 2024) (or the first 3 months of the current year (ex.2025 if the qualified expenses were paid in 2024) Generally called Fall season.
• The credit is limited to the first four tax years of postsecondary education. (Generally Freshman through Senior)
• Can not have a felony drug conviction
• Student must be pursuing a program leading to a degree or other recognized education credential

Qualified Education Expenses:

Save receipts for textbooks and required supplies — even if you buy them somewhere other than the campus bookstore.

• Tuitions
• Required enrollment fees.
• Books and other supplies needed for course study.

Expenses That Don't Qualify

The following are not qualified education expenses for the American Opportunity Credit.

• Insurance;
• Medical expenses (including student health fees);
• Room and board;
• Transportation; or
• Similar personal, living, or family expenses.

**Even if the expense is part of school requirement, they do not qualify.

The Lifetime Learning Credit (LLC)

This credit is 100% nonrefundable, so it can lower your tax bill to zero, but it won’t get you a refund beyond that. Unlike the American Opportunity Credit, this credit can be claimed an unlimited amount of time.

There is a maximum of $2,000 per return (not per student). Up to $10,000 of qualified education expenses can be used, the credit is 20% of the amount.

The requirements for claiming Lifetime Learning Credit are:

• Generally to claim the Lifetime Learning Credit, the law requires the student to have received Form 1098-T, Tuition Statement.
• Available all years of postsecondary education and for courses to acquire or improve job skills.
• Available for an unlimited number of tax years.
• Is not required to be pursuing a program leading to a degree or other recognized education credential.
• Can take as little as one class and qualify!
• Felony drug convictions don't make the student ineligible.

Qualified Education Expenses for Lifetime Learning Credit

• Tuition and fees required for enrollment or attendance
• Course-related books
• Supplies, and equipment)

Expenses That Don't Qualify

The following are not qualified education expenses for the American Opportunity Credit.

• Insurance;
• Medical expenses (including student health fees);
• Room and board;
• Transportation; or
• Similar personal, living, or family expenses.

**Even if the expense is part of school requirements, they do not qualify.

AOTC is usually the better choice for undergraduate students due to the higher benefit and partial refundability.

LLC is ideal for graduate school, part-time students, or continued education beyond four years.