Education can be expensive, but the IRS offers tax relief in the form of two valuable credits: the American Opportunity Credit (AOC) and the Lifetime Learning Credit (LLC). Both are claimed using IRS Form 8863, titled “Education Credits (American Opportunity and Lifetime Learning Credits).” If you or a dependent attended a qualifying educational institution and incurred eligible expenses, this form could significantly reduce your tax bill or increase your refund.
This blog provides a detailed breakdown of Form 8863, including who qualifies, how to claim the credits, documentation required, and how to avoid common mistakes when completing the form.
What Is IRS Form 8863?
Form 8863 is used to claim education tax credits for qualified tuition and related expenses paid for an eligible student. The form covers:
- American Opportunity Credit (AOC): Up to $2,500 per student per year for the first four years of higher education
- Lifetime Learning Credit (LLC): Up to $2,000 per return per year for undergraduate, graduate, and professional degree courses
The credits are partially or fully non-refundable, which means they can reduce your tax liability and may also lead to a refund depending on your income level and credit type.
Eligibility Requirements
General Requirements for Both Credits
- You must pay qualified education expenses for yourself, your spouse, or your dependent
- The student must attend an eligible educational institution
- You must receive a Form 1098-T from the institution
- Your Modified Adjusted Gross Income (MAGI) must be within the allowable limits
American Opportunity Credit Specifics
- Applies only to the first four years of postsecondary education
- The student must be enrolled at least half-time for at least one academic period during the tax year
- The student must not have completed the first four years of higher education before the tax year
- Maximum credit: $2,500 per eligible student (40% refundable)
Lifetime Learning Credit Specifics
- Can be used for any postsecondary education and for courses to acquire or improve job skills
- There is no limit on the number of years the credit can be claimed
- Student can be enrolled in one or more courses
- Maximum credit: $2,000 per tax return (non-refundable)
Income Limits for 2024
Eligibility for both credits phases out at higher income levels:
American Opportunity Credit
- Phase-out begins at MAGI of $80,000 (single) and $160,000 (married filing jointly)
- Fully phased out at $90,000 (single) and $180,000 (MFJ)
Lifetime Learning Credit
- Phase-out begins at MAGI of $80,000 (single) and $160,000 (married filing jointly)
- Fully phased out at $90,000 (single) and $180,000 (MFJ)
Structure of Form 8863
Form 8863 is divided into two parts:
Part I – Refundable and Nonrefundable Education Credits
This section calculates the total allowable education credit. It considers the credit type, your income, and tax liability to determine how much of the credit you can use to reduce taxes owed or receive as a refund.
Part II – Student and Expense Information
This part is completed separately for each student for whom you’re claiming a credit. You must enter:
- The student’s name and Social Security Number
- Indication of eligibility for AOC or LLC
- Qualified tuition and related expenses
- Whether Form 1098-T was received
If you’re claiming credits for multiple students, attach additional Part II sections as needed.
What Are Qualified Expenses?
Not all education-related costs qualify for these credits. The following do count:
- Tuition and fees required for enrollment or attendance
- Books, supplies, and equipment needed for course instruction (AOC only)
The following are NOT qualified expenses:
- Room and board
- Transportation
- Medical expenses
- Insurance
Filing Form 8863
You must attach Form 8863 to your Form 1040 or 1040-SR when filing your federal tax return. Most e-filing tax software includes this form and will prompt you to enter the necessary information based on your 1098-T form.
It’s essential to keep copies of:
- Form 1098-T issued by the institution
- Receipts for tuition, fees, and qualifying supplies
- Enrollment records and transcripts
Common Mistakes to Avoid
- Claiming the AOC for more than four years per student
- Claiming a student who is not your dependent
- Using the same expenses for both the AOC and LLC
- Omitting Form 8863 or attaching incomplete student information
Refund Impact and IRS Scrutiny
Because the AOC is partially refundable, it can increase your refund even if you owe no tax. However, education credits are often reviewed by the IRS. Be sure your documentation is complete and accurate to avoid delays or audits.
If you previously had your education credit disallowed by the IRS, you may be required to submit Form 8862 in a future year to reclaim the credit. Always review IRS correspondence if this applies to you.
Coordination With Other Tax Benefits
You cannot double-dip. If you use expenses for an education credit, you cannot use the same expenses for:
- Tuition and fees deduction (expired after 2020)
- 529 plan withdrawals
- Employer educational assistance exclusions
Summary: Maximize Your Education Credits with Form 8863
IRS Form 8863 is a powerful tool to help reduce your tax liability or increase your refund by claiming either the American Opportunity Credit or Lifetime Learning Credit. Whether you’re a full-time undergraduate student or a professional upgrading your skills, these education credits can offset the high cost of tuition and related expenses.
To ensure you benefit fully, make sure to:
- Understand the eligibility rules
- Retain your Form 1098-T and supporting receipts
- Accurately fill out Form 8863
- File with your annual federal tax return
Education is an investment in your future—and with the right tax planning, it can come with significant financial returns in the form of tax credits. If you’re unsure whether you qualify, consult a tax professional to make the most of Form 8863 and your education expenses.
