Education Tax Credits That Can Reduce Your Tax

College and professional training expenses can represent a significant financial burden for many families. Tuition, books, supplies, and other education-related costs can quickly add up throughout the year.

However, some taxpayers file their tax returns without checking whether they qualify for an education tax credit. As a result, they may miss a benefit that could directly reduce their federal tax liability and, in certain cases, increase their refund.

There are currently two main education tax credits: the American Opportunity Tax Credit and the Lifetime Learning Credit. Although both can help with higher education expenses, their requirements and benefits are different.

American Opportunity Tax Credit

The American Opportunity Tax Credit, also known as the AOTC, is mainly intended for students who are within their first four years of higher education.

This credit may provide up to $2,500 for each eligible student. To claim it, the student generally must be pursuing a college degree, certificate, or another recognized educational credential and must meet the applicable enrollment requirements.

One of its most important features is that it may be partially refundable. Up to 40% of the credit may be received as a refund, for a maximum of $1,000, even when the taxpayer does not owe enough federal tax to use the full credit.

Expenses that may qualify for this credit include tuition, certain required fees, and some books, supplies, or equipment needed for the student’s courses. In certain circumstances, books and supplies may qualify even when they were not purchased directly from the educational institution.

The AOTC may only be claimed for a maximum of four tax years for the same student. For this reason, it is important to verify whether the credit was previously claimed by the student, the student’s parents, or another taxpayer.

Lifetime Learning Credit

The Lifetime Learning Credit, also known as the LLC, may reduce federal tax by up to $2,000 per tax return.

Unlike the AOTC, this credit is not limited to the first four years of higher education. It may be claimed for an unlimited number of years, as long as the taxpayer continues to meet the requirements.

It may also be useful for graduate students, individuals taking courses to improve their professional skills, or taxpayers who are studying without necessarily being enrolled in a degree program.

For example, someone taking classes to update their knowledge, gain new job skills, or advance professionally may qualify, as long as the courses are offered by an eligible educational institution and the other requirements are met.

The Lifetime Learning Credit is not refundable. This means it may reduce the taxpayer’s federal tax liability to zero, but any remaining credit will not be paid as a refund.

Who Can Claim an Education Credit?

Generally, a taxpayer may be able to claim one of these credits when eligible education expenses were paid for:

• The taxpayer.

• The taxpayer’s spouse.

• A dependent claimed on the tax return.

  
  

The student must attend an eligible educational institution. In most cases, the school provides Form 1098-T, Tuition Statement, which includes information about tuition and other education payments. The taxpayer uses this information, together with payment receipts, to determine which expenses actually qualify.

To calculate and claim the credit, the taxpayer must complete Form 8863, Education Credits, and attach it to Form 1040 or Form 1040-SR.

Receiving Form 1098-T does not automatically mean that the taxpayer qualifies. The taxpayer must also review income limits, filing status, the relationship to the student, and the type of expenses that were paid.

Scholarships and Educational Assistance

Scholarships, grants, and other tax-free educational assistance may affect the calculation of the credit.

A taxpayer cannot claim a credit for the same portion of expenses that was paid with a tax-free scholarship. If tuition was fully covered by this type of assistance, there may be no remaining qualified expense available to calculate the credit.

However, when eligible education expenses are greater than the scholarships received, the remaining amount may potentially be used to determine the credit, as long as all other requirements are met.

Tax Benefits Cannot Be Duplicated

The same expense cannot be used more than once to obtain different tax benefits.

For example, a taxpayer cannot use the same tuition payment to claim both the AOTC and the Lifetime Learning Credit for the same student during the same tax year.

The same expense should also not be used to calculate an education credit while also supporting another tax benefit related to tax-free education accounts.

However, a family with more than one student may be able to claim the AOTC for one student and the Lifetime Learning Credit for another, as long as each student meets the corresponding requirements.

An Important Rule for 2026

Beginning with tax year 2026, individuals claiming the AOTC or the Lifetime Learning Credit must meet new identification requirements.

IRS Publication 970 states that the person claiming the credit must have a Social Security number that is valid for employment and issued before the tax return’s due date. When the credit is claimed for another person’s education expenses, the student must also meet this requirement.

For this reason, it is important to review both the educational documentation and the taxpayer identification numbers before preparing the tax return.

Errors That May Cause You to Lose the Credit

Some common errors include:

• Failing to review Form 1098-T.

• Claiming expenses paid with tax-free scholarships.

• Using the same expenses for two different tax benefits.

• Claiming the AOTC for more than four years.

• Confusing a credit allowed per student with a credit allowed per tax return.

• Failing to keep receipts for tuition, books, and supplies.

• Claiming a credit without verifying that the institution is eligible.

• Failing to complete Form 8863 correctly.

Conclusion

Education tax credits may provide significant savings for students and families who paid for college, technical programs, graduate courses, or professional training.

Before filing a tax return, taxpayers should review Form 1098-T, any scholarships received, payment receipts, and the history of credits previously claimed for each student.

Choosing correctly between the American Opportunity Tax Credit and the Lifetime Learning Credit may reduce federal tax and, in certain cases, generate an additional refund that the taxpayer might otherwise lose.