How to Claim Education Credits on Your Tax Return

College costs can put real pressure on a family budget, especially when tuition arrives alongside housing, transportation, and everyday expenses. Knowing how to claim education credits can help eligible taxpayers reduce the federal income tax they owe and, in some cases, increase their refund. The key is choosing the right credit, using the correct expenses, and keeping documentation that supports the return.

Education credits are valuable, but they are not automatic. A Form 1098-T from a school is a starting point, not a guarantee that a credit belongs on your tax return. Your filing status, income, dependency rules, scholarships, and the type of program all matter.

Understand the two federal education credits

The federal tax code offers two primary education credits: the American Opportunity Tax Credit, often called the AOTC, and the Lifetime Learning Credit, or LLC. A taxpayer may claim only one of these credits for the same student in the same tax year. However, a family with more than one eligible student may be able to claim different credits for different students.

American Opportunity Tax Credit

The AOTC is generally the more valuable option for an eligible undergraduate student. It can provide a credit of up to $2,500 per student each year for the first four years of postsecondary education. The credit equals 100% of the first $2,000 in qualified expenses and 25% of the next $2,000.

Up to $1,000 of the AOTC may be refundable. That means a taxpayer who has little or no federal income tax liability may still receive part of the credit as a refund, provided they meet the requirements.

To qualify, the student must generally be pursuing a degree or recognized educational credential, enrolled at least half-time for at least one academic period during the year, and not have completed the first four years of higher education before the beginning of the tax year. The student also cannot have claimed the AOTC for more than four tax years or have a felony drug conviction.

Lifetime Learning Credit

The Lifetime Learning Credit is broader but less generous. It is worth up to $2,000 per tax return, not per student. It equals 20% of up to $10,000 in qualified education expenses.

Unlike the AOTC, the LLC is nonrefundable. It can reduce your tax bill to zero, but it cannot create a refund beyond taxes you owe. Still, it can be a strong option for graduate students, students taking professional or job-skills courses, and adults who are continuing their education without pursuing a degree.

There is no limit on the number of years a taxpayer can claim the Lifetime Learning Credit. The student generally does not need to attend school at least half-time, which makes this credit more flexible for part-time learners.

How to claim education credits correctly

Start by determining who has the legal right to claim the student. If a parent or another taxpayer claims the student as a dependent, that taxpayer generally claims the education credit, even if the student paid some of the tuition. A student who is claimed as a dependent cannot claim the credit on their own return.

Next, compare the available credits based on the student’s status and your tax situation. The AOTC is often preferable for an eligible undergraduate because of its higher maximum value and refundable portion. The LLC may fit better for graduate school, career training, part-time enrollment, or education beyond the first four undergraduate years.

Then complete IRS Form 8863, Education Credits, and include it with your federal income tax return. Tax software usually walks filers through the form, but the answers must still match your records. A tax professional can help when scholarships, multiple students, divorced-parent dependency questions, self-employment income, or other tax issues make the decision less straightforward.

Know which expenses qualify

Qualified expenses are not every cost associated with attending school. For the AOTC, qualified expenses generally include tuition, required enrollment fees, and course materials such as books, supplies, and equipment that the student needs for a course. These materials can qualify even if they were not purchased directly from the school.

For the Lifetime Learning Credit, qualified expenses generally include tuition and required enrollment fees. Books, supplies, and equipment usually qualify only when the student must buy them from the institution as a condition of enrollment or attendance.

Expenses that generally do not qualify include room and board, insurance, transportation, medical costs, student activity fees that are not required for enrollment, and personal living expenses. A laptop may qualify for the AOTC if it is required course material, but it is not automatically eligible simply because a student uses it for school.

Timing matters as well. You can generally use qualified expenses paid during the tax year for an academic period beginning in that year or during the first three months of the following year. For example, qualifying tuition paid in December for a spring semester that begins in January may be considered for the earlier tax year.

Use Form 1098-T, but do not rely on it alone

Eligible colleges, universities, and vocational schools usually issue Form 1098-T, Tuition Statement, to students. The form reports information about tuition and related expenses billed or received by the institution, along with certain scholarships and grants.

Review the form carefully, but compare it with your own records. Keep tuition bills, payment confirmations, account statements, receipts for required materials, scholarship notices, and records of grants or employer assistance. The amount in Box 1 of Form 1098-T may not perfectly reflect the expenses you can claim for a credit because of payment timing and other adjustments.

If the school did not issue a Form 1098-T, do not assume a credit is unavailable. There are limited situations where an institution may not be required to provide one. You still need records showing that the student and institution were eligible and that qualifying expenses were paid.

Account for scholarships, grants, and other assistance

Tax-free scholarships, grants, employer-provided educational assistance, veterans’ benefits, and similar aid can reduce the qualified expenses available for an education credit. You cannot use the same tax-free funds both to cover tuition and to claim a credit.

For example, if tuition and required fees total $8,000 and the student receives a $5,000 tax-free scholarship that is applied to those costs, only $3,000 may remain for an education credit calculation. The exact result depends on how the funds were applied and whether any scholarship amount is taxable.

There can be planning choices when a scholarship can be used for both qualified education expenses and nonqualified expenses such as room and board. In some cases, treating part of a scholarship as taxable income may allow a larger education credit. That approach is not right for every family, because it can increase the student’s taxable income and may affect other tax benefits. Review the numbers before making that election.

You also cannot double-dip by using the same expenses for an education credit and a tax-free 529 plan distribution. Careful coordination is especially important for families using 529 savings, scholarships, and employer reimbursement in the same year.

Check income and filing-status limits

Both credits have modified adjusted gross income limits. For the 2025 tax year, the AOTC and LLC generally begin to phase out when modified adjusted gross income exceeds $80,000 for single filers and $160,000 for married couples filing jointly. The credits are generally unavailable at $90,000 for single filers and $180,000 for married couples filing jointly.

Taxpayers who are married filing separately generally cannot claim either credit. The same is usually true for a taxpayer who can be claimed as someone else’s dependent. Because income, filing status, and dependency rules can change from year to year, confirm the rules that apply to the specific return you are filing.

Avoid mistakes that delay your return

Education-credit errors can delay processing or lead to an IRS notice. The most common problem is claiming a credit for expenses paid with tax-free scholarships or grants. Other issues include claiming a student who is not an eligible dependent, using the AOTC after four prior years, or claiming the same student and expenses on two separate returns.

Before filing, make sure the student’s Social Security number, the school’s employer identification number, enrollment information, and expense figures are accurate. If you are filing electronically, inconsistencies between Form 8863 and Form 1098-T information may trigger additional review.

Education expenses are a meaningful investment in your family’s future. Taking the time to document them properly can help you claim the tax benefit you deserve while keeping your return accurate, compliant, and ready to support your broader financial goals.