If you or your dependent are enrolled in post-secondary education, you may qualify for valuable education tax credits. Two of the most popular options—claimed via IRS Form 8863—are the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). These credits can reduce your tax bill significantly and, in some cases, provide a refund even if you owe no tax.
📘 What Is IRS Form 8863?
Form 8863 is used to claim the AOTC and LLC on your federal tax return. You must complete this form and attach it to your Form 1040 or 1040-SR to receive either credit. Each credit has its own eligibility rules, maximum value, and benefits.
🎓 American Opportunity Tax Credit (AOTC)
The AOTC is a partially refundable credit designed to help cover undergraduate education expenses for students in their first four years of college.
✅ AOTC Highlights:
- Maximum Credit: $2,500 per eligible student
- Refundable Portion: Up to $1,000 (40% of the credit)
- Eligible Expenses: Tuition, fees, books, and course materials
- Enrollment Requirement: At least half-time in a degree or certificate program
- Claim Limit: Four tax years per student
💰 AOTC Income Limits (2025):
- Single filers: Phase-out begins at $80,000; fully phased out at $90,000
- Married filing jointly: Phase-out begins at $160,000; fully phased out at $180,000
📌 Example:
A parent who pays $4,000 in qualifying tuition and books for their dependent daughter (a sophomore in college) can claim the full $2,500 credit—reducing their tax liability or increasing their refund.
📚 Lifetime Learning Credit (LLC)
The LLC is a nonrefundable credit available for a broader range of education types—including graduate courses, vocational training, and courses to improve job skills.
✅ LLC Highlights:
- Maximum Credit: $2,000 per return (not per student)
- Refundable: No (only reduces tax liability)
- Eligible Expenses: Tuition and required fees (not books unless required to enroll)
- Enrollment Requirement: At least one course (no degree program required)
- Claim Limit: Unlimited years (no lifetime cap)
💰 LLC Income Limits (2025):
- Single filers: Phase-out begins at $80,000; fully phased out at $90,000
- Married filing jointly: Phase-out begins at $160,000; fully phased out at $180,000
🧾 Key Differences Between AOTC and LLC
| Feature | AOTC | LLC |
|---|---|---|
| Max Credit | $2,500 per student | $2,000 per return |
| Refundable | Yes (up to $1,000) | No |
| Years Claimed | 4 years per student | Unlimited |
| Enrollment | At least half-time | One course minimum |
| Eligible Levels | Undergraduate only | Any level (incl. grad and job training) |
📎 Required Forms and Documentation
- Form 1098-T: Received from the educational institution and includes tuition paid
- Form 8863: Must be completed to claim either credit
- Records: Keep receipts for books, supplies, and tuition payments
⚠️ Common Mistakes to Avoid
- Claiming the AOTC for more than 4 years
- Using both credits for the same student in the same year
- Not using Form 8863
- Claiming expenses not deemed “qualified” by the IRS
🧠 Tip: Which Credit Should You Choose?
When eligible for both, the AOTC generally provides a larger benefit because it’s partially refundable and has a higher credit limit. However, if you’re a part-time student, graduate student, or taking continuing education courses, the LLC may be your only option.
✅ Final Thoughts
Education tax credits offer significant financial relief for students and families. For tax year 2025, make sure to gather all your records, confirm eligibility, and file Form 8863 to take full advantage of the AOTC or LLC. These credits can lead to thousands in tax savings or refunds—making higher education a little more affordable.
