The American Opportunity credit (AOTC) allows taxpayers to claim a credit up to $2,500 for qualified education expenses paid for each eligible student for the first four years of higher education. Unlike a deduction, which reduces the amount of income subject to tax, a credit directly reduces the tax.
If the credit brings the amount of tax you owe to zero, you can have 40 percent of any remaining amount of the credit (up to $1,000) refunded to you.
The amount of the credit is 100 percent of the first $2,000 of qualified education expenses you paid for each eligible student, and 25 percent of the next $2,000 of qualified education expenses you paid for that student. If the credit pays your tax down to zero, you can have 40 percent of the remaining amount of the credit (up to $1,000) refunded to you.
An eligible student is either the taxpayer, taxpayer’s spouse, or a dependent who is claimed as an exemption on the taxpayer’s tax return and the student meets the following:
Students should receive a Form 1098-T Tuition Statement by January 31st. This statement helps identify your credit. The form will have an amount in either box 1 or 2 to show the amounts received or billed during the year.
To claim AOTC, you must complete the Form 8863 and attach the completed form to your Form 1040 or Form 1040A.
The Lifetime Learning Credit (LLC) allows taxpayers to claim a maximum credit of up to $2,000 per tax return for eligible students enrolled in an eligible educational institution. This credit can help pay for undergraduate, graduate, and professional degree courses, including courses taken to acquire or improve job skills.
To claim a LLC, you must meet all three of the following:
To be eligible for LLC, the student must: