IRS Tax Credits for Schooling

If you, your spouse, or child is a student, you could qualify for the American Opportunity Tax Credit or the Lifetime Learning Credit.  Even if you qualify for both credits, you can only claim one per student in a tax year.

The American Opportunity Tax Credit can be taken for each student who is eligible for a maximum of $2500 per student on qualified educational expenses paid during the tax year at an eligible school.  Tuition, fees and other related expenses are considered qualified educational expenses.  Room and board are not qualified education expenses.  You get a dollar for dollar credit on the first $2,000 spent, and then 25% of the next $2000.  So you must spend more than $4,000 in qualified expenses to be eligible for the full $2500.00 credit.  You may receive a refund for up to 40% of this credit, or $1000 if you spend $4000.  The American Opportunity tax credit may also be taken for four years for each eligible student.  This credit is only available if the student has not completed the first four years of post-secondary education prior to 2016.  If a taxpayer has a modified adjusted gross income of $80,000 or less, the full credit may be claimed.  For joint returns of married couple, the modified adjusted gross income limit is $160,000.  Once you earn more than these levels, the credit will be phased out.  For single filers with a modified adjusted gross income of $90,000 or joint filers with a modified adjusted gross income above $180,000, no credit will be given.  If you’re eligible for this credit, you will fill out form 8863.

The Lifetime Learning credit has a maximum credit for the tax return.  $2000 per tax return can be claimed for both graduate and undergraduate schools.  This credit applies to each tax return, instead of each student, unlike the American Opportunity Credit.  This credit applies whether you are a full-time or part-time student.  If you do not owe tax, you cannot receive a refund of this credit.  The credit is equal to twenty percent of the amount spent on eligible expense across all students on the return.  In other words, $2,000 may only be claimed if you pay over $10,000 or more in qualifying tuition, and you also owe tax.  Form 8863 must be filled out to claim one of these educational credits and must include an eligible school.  There are income limits that can reduce the amount you may claim on your tax return.  To claim the full credit, the modified adjusted gross income must be below $55,000 for a single taxpayer, and $111,000 for married filing joint.  If income exceeds $65,000 and $131,000 respectively, the credit is phased out.

The IRS has designed a tool you can use to see if you’re eligible for these tax credits.  It can be accessed at  Additionally, the school attended should send Form 1098-T showing how much tuition was paid.  The amount shown on the 1098-T may not be the amount that you will receive as a credit.

There are other education-related tax benefits available to help taxpayers including:

  1. Scholarships and grants – these are generally tax-free if they pay for tuition, fees, and books. They may be taxable if used for room, board, travel, or other expenses.
  1. A tuition and fees deduction which may be claimed on Form 8917.
  1. There are student loan interest deductions up to $2500 per year.
  1. If saving bonds are used to pay for college, the interest may be tax-free if the bonds were purchased after 1989 by someone at least 24 years of age that pays taxes. However, there are some income restrictions on this situation.
  1. 529 Plans – you may pre-pay to save for a college education, and in Indiana, there is a 20% credit for the state, up to $1,000.

Julie Camden of Camden & Meridew, P.C. practices in the areas of tax and bankruptcy law.  Julie has litigated various issues related to individual and corporate tax obligations.  Please contact our office at 317-770-0000 or complete our online contact form if you would like to explore tax planning options.

This website supplies general information about the law but it is provided for informational purposes only.  This content does not create an attorney-client relationship and more importantly is not meant to constitute legal advice.  You should not act on any of the information contained herein without first consulting an attorney.