Education tax credits and breaks for college students

Understandably, the cost of higher education can leave you worrying about money. Whether you are attending a public or private school, completing a two or four-year degree, or taking a few courses here and there, the costs of attending educational institutions can leave you in debt. Thankfully, a few education tax breaks for students may help offset some education expenses on your tax return.

Have other student tax filing questions?  Be sure to visit our Tax Guide for College Students and find out about student forms that can be filed for free. 

What is the education tax credit?

An education tax credit is a type of tax benefit provided by the U.S. government to help offset the costs of higher education expenses. Education tax credits can help reduce the amount of tax owed or provide a refund if the credit exceeds what you owe in some cases, giving you extra money to pocket into your personal funds. This is great news if you’re a student on a limited budget. 

And if you’re wondering, “Who qualifies for the education tax credits,” the answer varies by type of education credit available. We’ll dig into the details in the next section!

What credits are available?

A few key education credits can help your tax bottom line. They vary by make and design but aim to reduce your taxable liability as a college student.

A The two key tax credits include the American Opportunity Credit and Lifetime Learning Credit. Take note that both credits are subject to different phase-out limitations based on modified adjusted gross income (MAGI).

American Opportunity Credit (AOC)

The American Opportunity Tax Credit (AOTC) allows a maximum credit of $2,500 for qualifying educational expenses paid during the tax year (100% of the first $2,000 of qualified expenses and 25% of the next $2,000 of qualified expenses) for an eligible student attending an eligible educational institution.

In addition, up to 40% ($1,000) of the AOC is refundable, allowing taxpayers who do not have a tax liability to claim the credit.

Example: Eli and Monica pay $8,000 in eligible education expenses for their daughter’s junior year in college. Their tax liability is $1,000. Under the American Opportunity Credit, they qualify for a credit of $2,500, $1,000 of which is refundable.

Lifetime Learning Credit (LLC)

The Lifetime Learning Credit, or LLC, allows a maximum credit of up to $2,000 for qualifying educational expenses paid during the tax year for an eligible student enrolled at an eligible educational institution. The LLC is calculated as 20% of up to $10,000 of qualified education expenses per return. The credit is non-refundable.

Example: Glenn paid qualified tuition of $20,000. He is eligible for a maximum lifetime learning credit of $2,000 ($10,000 × 20%).

Who qualifies for and can claim these education tax credits?

To claim either credit, qualifying educational expenses must be paid for an “eligible student.” An eligible student can be yourself, your spouse, or your dependent for whom you claim an exemption. The meaning of an eligible student is different for each credit. Below are the general requirements to be considered an eligible student:

American Opportunity Credit (AOC)

• The student must not have had expenses used to figure the AOC in four earlier tax years.
• For at least one academic period during the tax year the student must meet both of the following requirements:

1.      The student must be a candidate for a degree, certificate, or other recognized educational credential.

2.      The student must take at least one-half of a full workload, which is determined by the school.

• The student must not have completed the first four years of secondary education.
• The student must not have a federal or state felony conviction for possessing or distributing drugs.

Lifetime Learning Credit (LLC)

• The student must be enrolled or taking courses at an eligible education institution.
• The student must be taking a higher education course or courses to get a degree or other recognized education credential or to get or improve job skills.

Considerations for choosing tax credits for education

There are a few things to keep in mind as you claim tax credits for education. Unlike the AOC, the LLC can be claimed an unlimited number of times. Plus, graduate students can qualify for the tax break, too! Also, remember that the AOC and LLC can’t be claimed in the same year for the same student.

To this end, it can help to check with a tax expert to determine the best credit for your unique situation to get you the most bang for your buck! Or you can take the DIY approach. H&R Block’s downloadable do-it-yourself tax software lets you do your taxes at your own pace.

For a complete list of requirements that must be met to claim the AOC and LLC, visit this resource: IRS Publication 970, Tax Benefits for Education.

Tax breaks for students: Understanding what education tax forms you’ll need

When you take educational tax credits, you’ll need to use a few additional forms than you normally would on your tax return. Add these to your list of tax forms that need to be completed as a student:

For the AOTC and LLC

• IRS Form 8863 – Used to claim the American Opportunity Credit (AOTC) and the Lifetime Learning Credit (LLC).
•  Form 1098-T –This shows the annual educational expenses you paid, and is referred to as a tuition statement.
• Form 1098-E – If you paid more than $600 in interest, a lender will automatically send you Form 1098-E. You may still deduct interest if you paid less than $600, but you’ll have to ask your servicer for the information.

Other tax benefits and deductions

These credits aren’t the only education tax credits or benefits available to benefit your tax return. Other relevant tax benefits include savings plans, scholarships, and the student loan interest deduction.

Where to go for more help with tax credits for education

If you’re looking for assistance navigating tax breaks for education, get help from H&R Block. Whether you file on your own with H&R Block Online or with a tax pro, we can guarantee 100% accuracy and your maximum tax refund or your money back.

Plus, keep in mind that some students can file for free! Find out more about who can file for free with H&R Block Free Online.