Education Credits: Questions and Answers

Welcome to the Education Credits: Questions and Answers knowledge base article. Here, we will provide answers to the most common questions you may have about the Education Credits, specifically the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC).

Changes to Tax Credits for Higher Education Expenses

Q1. Have there been any changes in the past few years to the tax credits for higher education expenses?

A1. No, but the Protecting Americans Against Tax Hikes (PATH) Act of 2015 made the AOTC permanent. The AOTC helps defray the cost of higher education expenses for tuition, certain fees, and course materials for four years.

To claim the AOTC or LLC, you will need to use Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits). Additionally, if you claim the AOTC, this law requires you to include the school's Employer Identification Number on this form.

In addition, the Trade Preferences Extension Act 2015 requires most students to have received a Form 1098-T. To be eligible to claim the AOTC or the LLC, this law requires a taxpayer (or a dependent) to have received Form 1098-T, Tuition Statement, from an eligible educational institution.

AOTC vs. LLC

Q2. How does the AOTC differ from the existing LLC?

A2. Unlike the other education tax credits, the AOTC is allowed for expenses for course-related books, supplies, and equipment that are not necessarily paid to the educational institution but are needed for attendance. It also differs because you can claim the credit for four tax years instead of having no limit on the number of years you can claim the LLC. See Education Credits: AOTC and LLC for more information.

Value of the AOTC

Q3. How much is the AOTC worth?

A3. The AOTC is a tax credit of up to $2,500 of the cost of tuition, certain required fees, and course materials needed for attendance and paid during the tax year. Additionally, 40 percent of the credit for which you qualify that is more than the tax you owe (up to $1,000) can be refunded to you.

Impact of AOTC on Income Taxes

Q4. How does the AOTC affect my income taxes?

A4. You reduce the amount of tax you owe dollar for dollar by the amount of the AOTC for which you qualify, up to the amount of tax you owe. If the amount of the AOTC is more than the tax you owe, then up to 40 percent of the credit (up to $1,000) can be refunded to you.

Qualified Tuition and Related Expenses

Q5. What are qualified tuition and related expenses for the education tax credits?

A5. In general, qualified tuition and related expenses for the education tax credits include tuition and required fees for enrollment or attendance at eligible post-secondary educational institutions (including colleges, universities, and trade schools). The expenses paid during the tax year must be for an academic period that begins in the same tax year or an academic period that begins in the first three months of the following tax year.

The following expenses do not qualify for the AOTC or the LLC:

• Room and board
• Transportation
• Insurance
• Medical expenses
• Student fees, unless required as a condition of enrollment or attendance
• Same expenses paid with tax-free educational assistance
• Same expenses used for any other tax deduction, credit, or educational benefit

Additional Education Expenses for AOTC

Q6. What additional education expenses qualify for the AOTC, but not the LLC?

A6. For the AOTC but not the LLC, qualified tuition and related expenses include amounts paid for books, supplies, and equipment needed for a course of study. You do not have to buy the materials from the eligible educational institution. Add amounts paid for these materials to Form 8863 along with your other adjusted qualified education expenses. The total of all qualified tuition and related expenses for calculating the AOTC cannot exceed $4,000, and as explained in Q&A 3, the maximum allowable credit is $2,500. See Qualified Education Expense for more information.

Computer Qualification for AOTC

Q7. Does a computer qualify for the AOTC?

A7. It depends. The amount paid for the computer can qualify for the credit if you need the computer for attendance at the educational institution.

Eligible Student for AOTC

Q8. Who is an eligible student for the AOTC?

A8. An eligible student for the AOTC is a student who:

• Was enrolled at least half-time in a program leading toward a degree, certificate, or other recognized educational credential for at least one academic period during the tax year,
• Has not completed the first four years of post-secondary (education after high school) at the beginning of the tax year,
• Has not claimed (or someone else has not claimed) the AOTC for the student for more than four years, and
• Was not convicted of a federal or state felony drug offense at the end of the tax year.

AOTC for Undergraduate and Graduate Students

Q9. If a student was an undergraduate student during the first part of the tax year and became a graduate student that same year, can the student claim or be claimed for the AOTC for the qualified tuition and related expenses paid during the entire tax year?

A9. Yes, the AOTC can be claimed for this student for qualified educational expenses paid during the entire tax year if all other requirements are met and the student:

• Has not completed the first four years of post-secondary (education after high school) education as of the beginning of the tax year, and
• Has not claimed the AOTC for more than four tax years.

AOTC for Four Years of Tuition

Q10. I'm just beginning college this year. Can I claim the AOTC for all four years I pay tuition?

A10. Yes, if you remain an eligible student and no one can claim you as a dependent on their tax return, the AOTC is available for qualifying expenses paid during each tax year.

Calculation of AOTC

Q11. How do I calculate the AOTC?

A11. You calculate the AOTC based on 100 percent of the first $2,000 of qualifying expenses, plus 25 percent of the next $2,000 paid during the tax year.

Income Limit for AOTC

Q12. Is there an income limit for the AOTC?

A12. Yes. To claim the full credit, your MAGI (Modified Adjusted Gross Income) must be $80,000 or less ($160,000 or less for married taxpayers filing jointly). If your MAGI is over $80,000 but less than $90,000 (over $160,000 but less than $180,000 for married taxpayers filing jointly), the amount of your credit is reduced. If your MAGI is over $90,000 ($180,000 for married taxpayers filing jointly), you cannot claim the credit.

Definition of Modified Adjusted Gross Income (MAGI)

Q13. What is "modified adjusted gross income" for the purpose of the AOTC?

A13. For most filers, it is the amount of your AGI (Adjusted Gross Income) from your tax return. If you file Form 1040 or 1040-SR, your MAGI is the AGI on line 11 of that form, modified by adding back any:

• Foreign earned income exclusion
• Foreign housing exclusion
• Foreign housing deduction
• Exclusion of income by bona fide residents of American Samoa or Puerto Rico.

Claiming Education Tax Credits

Q14. How do I claim an education tax credit?

A14. To claim the AOTC or LLC, use Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits). Additionally, if you claim the AOTC, the law requires you to include the school's Employer Identification Number on this form.

Reporting Education Tax Credit on Tax Return

Q15. Where do I put the amount of my education tax credit on my tax return?

A15. To claim the American Opportunity Credit, complete Form 8863 and submit it with your Form 1040 or 1040-SR. Enter the nonrefundable part of the credit on Schedule 3 (Form 1040 or 1040-SR), line 3. Enter the refundable part of the credit on Form 1040 or 1040-SR, line 29.

Alternatively, To claim the Lifetime Learning Credit, complete Form 8863 and submit it with your Form 1040 or 1040-SR. Enter the credit on Schedule 3 (Form 1040 or 1040-SR), line 3.

Claiming AOTC for Multiple Years

Q16. My dependent child attended college half-time in 2023 for a semester and will attend full-time starting 2024. Can I skip taking the AOTC for 2023 because her expenses are low and claim the AOTC for 2024 and future years? (updated January 10, 2024)

A16. Yes, you are not required to claim the credit for a particular year. If your child's college does not consider your child to have completed the first four years of college at the beginning of 2023, you can qualify to take the credit for up to four tax years.

AOTC for Part-Time College Students

Q17. I completed two years of college right after graduating from high school years ago before there was the Hope or AOTC. I now returned to college to finish my degree on a part-time basis; can I claim the AOTC and, if so, for how many years?

A17. You can claim the AOTC for any semester or other academic period if you take at least half the full-time course load for the first four years of college. If you take half the course load for at least one semester or other academic period of each tax year, and your college does not consider you to have completed the first four years of college as of the beginning of the tax year, you can qualify to take the AOTC for up to four tax years.

Form 1098-T and AOTC

Q18. What is Form 1098-T, Tuition Statement, and do I need to receive a Form 1098-T to claim the AOTC?

A18. Yes. The Form 1098-T is a form provided to you and the IRS by an eligible educational institution that reports, among other things, amounts paid for qualified tuition and related expenses. The form may be useful in calculating the amount of the allowable education tax credits. In general, a student must receive a Form 1098-T to claim an education credit. However, an eligible educational institution is not required to provide the Form 1098-T to you in certain circumstances, for example:

• Nonresident alien students, unless the student requests the institution to file Form 1098-T,
• Students whose tuition and related expenses are entirely waived or paid entirely with scholarships or grants, or
• Students for whom the institution does not maintain a separate financial account and whose qualified tuition and related expenses are covered by a formal billing arrangement with the student's employer or a government agency, such as the Department of Veterans Affairs or the Department of Defense.

Claiming AOTC without Form 1098-T

Q19. I did not receive a Form 1098-T because my school is not required to provide a Form 1098-T to me for 2023. Can I still claim an education credit for tax year 2023? (updated January 10, 2023)

A19. Yes, you can still claim the AOTC if you did not receive a Form 1098-T because the school is not required to provide you a Form 1098-T if:

• The student and/or the person able to claim the student as a dependent meets all other eligibility requirements to claim the credit,
• The student can show he or she was enrolled at an eligible educational institution, and
• You can substantiate the payment of qualified tuition and related expenses.

Be sure to keep records that show the student was enrolled and the amount of paid qualified tuition and related expenses. You may need to send copies if the IRS contacts you regarding your claim of the credit.

Claiming AOTC without Form 1098-T from Closed School

Q20. In 2022, my school went out of business and closed. I did not get a Form 1098-T for 2023 from the school. Can I still claim an education credit for tax year 2023? (updated January 10, 2023)

A20. Yes, you can still claim an education credit if your school that closed did not provide you a Form 1098-T if:

• The student and/or the person able to claim the student as a dependent meets all other eligibility requirements to claim the credit,
• The student can show he or she was enrolled at an eligible educational institution, and
• You can substantiate the payment of qualified tuition and related expenses.

Be sure to keep records that show the student was enrolled and the amount of paid qualified tuition and related expenses. You may need to send copies if the IRS contacts you regarding your claim of the credit.

Determining Eligible Educational Institution

Q21. How do I know if my school is an eligible educational institution?

A21. An eligible educational institution is a school offering higher education beyond high school. It includes any college, university, vocational school, or other post-secondary educational institution eligible to participate in a Federal student aid program run by the U.S. Department of Education. This includes most accredited public, nonprofit, and privately-owned-for-profit post-secondary institutions.

If you are unsure if your school is an eligible educational institution:

• Check to see if the student received a Form 1098-T, Tuition Statement. Eligible educational institutions are required to issue students Form 1098-T, Tuition Statement (some exceptions apply).
• Ask your school if it is an eligible educational institution, or
• See if your school is on the U.S. Department of Education's Database of Accredited Post Secondary Institutions and Programs (DAPIP) or the Federal Student Loan Program list.

IRS Letter Regarding AOTC Claim

Q22. I received a letter from the IRS questioning my AOTC claim. What should I do?

A22. If you receive a letter or are audited by the IRS, it may be because the IRS did not receive a Form 1098-T, Tuition Statement, or the IRS needs additional information to support the amounts of qualified tuition and related expenses you reported on Form 8863.

If you did receive a Form 1098-T, review it to make sure the student's name and Social Security number are correct. If either is not correct, contact the school and ask the school to correct the information for future 1098-T reporting. If the student should have, but did not receive the Form 1098-T, contact the school for a copy.

Please note that there are exceptions in which eligible educational institutions are not required to provide a Form 1098-T. See Q&A 18 for more information about the Form 1098-T.

If you claimed expenses that were not reported on the Form 1098-T in Box 1 as amounts paid, send the IRS copies of receipts, canceled checks, or other documents as proof of payment. See your letter for further instructions on what documents to send.

If you don't have the letter, see Forms 886-H-AOC and 886-H-AOC-MAX for examples. Form 886-H-AOC is also available in Spanish.

AOTC for F-1 Visa Students

Q23. Can students with an F-1 Visa claim the AOTC?

A23. For most students present in the U.S. on an F-1 Student Visa, the answer is no. Generally, the time an alien individual spends studying in the U.S. on an F-1 Student Visa does not count in determining whether he or she is a resident alien under the substantial presence test. See Publication 519, U.S. Tax Guide for Aliens, for more information.

Education Tax Credit for Nonresident Aliens

Q24. I am a Nonresident Alien, can I claim an education tax credit?

A24. Generally, a Nonresident Alien cannot claim an education tax credit unless:

• You are married and choose to file a joint return with a U.S. citizen or resident spouse, or
• You are a Dual-Status Alien and choose to be treated as a U.S. resident for the entire year. See Publication 519, U.S. Tax Guide for Aliens, for more information.

Incorrectly Prepared Tax Return by a Professional Tax Preparer

Q25. What should I do if the student's return was incorrectly prepared and filed by a professional tax preparer?

A25. You are legally responsible for what's on your tax return, even if someone else prepares it. The IRS urges you to choose a tax preparer wisely. For more information, read the IRS's How to Choose a Tax Return Preparer.

Other Education Tax Benefits

Q26. Are there any other education tax benefits?

A26. Yes, there are other education tax benefits available. Please see the Tax Benefits for Education: Information Center for more information.

Thank you for reading the Education Credits: Questions and Answers article. If you have any further questions, please feel free to reach out to us.