Two Tax Credits That Can Help Cover the Cost of Higher Education

Published by the Internal Revenue Service on March 10, 2022

Higher education is important to many people, but it can often be expensive. Whether you're pursuing specialized job training or an advanced degree, there are a lot of costs associated with higher education. Fortunately, there are two education tax credits designed to help offset these costs - the American Opportunity Tax Credit and the Lifetime Learning Credit.

Taxpayers who paid for higher education in 2021 can take advantage of these tax savings when they file their tax return. If you, your spouse, or your dependents took post-high school coursework, you may be eligible for a tax benefit. To claim either credit, you will need to complete Form 8863, Education Credits, and file it with your tax return.

These credits can significantly reduce the amount of tax you owe. In fact, if the credit reduces your tax to less than zero, you could even receive a refund. To be eligible to claim either of these credits, you or your dependent must have received a Form 1098-T from an eligible educational institution. However, there are exceptions for some students.

Here are some key things you should know about each of these credits:

American Opportunity Tax Credit

• Worth a maximum benefit of up to $2,500 per eligible student.
• Only available for the first four years at an eligible college or vocational school.
• For students pursuing a degree or other recognized education credential.
• Partially refundable. You could get up to $1,000 back.

Lifetime Learning Credit

• Worth a maximum benefit of up to $2,000 per tax return, per year, regardless of the number of students.
• Available for all years of postsecondary education and for courses to acquire or improve job skills.
• Available for an unlimited number of tax years.

To determine if you're eligible for either of these credits, you can use the Interactive Tax Assistant tool on IRS.gov. This tool will help you understand the requirements and calculate your potential tax savings.

For more information, you can:

• Compare Education Credits on the IRS website.
• Refer to Publication 970, Tax Benefits for Education.
• Subscribe to IRS Tax Tips for regular updates and helpful information.

Investing in higher education is a significant financial commitment, but these tax credits can help alleviate some of the costs. Make sure to take advantage of these opportunities and consult with a tax professional if you have any questions or need further guidance.