Education Tax Credits and Deductions

Just like the start of most learning plans, let’s start off with a few key terms to help you understand which tax benefits are available. The IRS Information Center for tax benefits for education provides the following definitions: 

• Credit – reduces the amount of income tax you have to pay. 
• Deduction – reduces the amount of your income that is taxed, which generally reduces the amount of tax you have to pay. 
• Savings Plans – certain savings plans allow you to grow savings tax-free until the money is taken out (distribution), or allow the distribution to be tax-free, or both. 

Typically, education-related tax breaks fall into one of these three categories: tax credits, tax deductions, or savings plans. This page will provide information specific to certain credits and deductions. 

An education credit helps with the cost of higher education by reducing the amount of tax you owe on your return. 

• The American Opportunity Tax Credit (AOTC) is a partially-refundable tax credit for college education where the student must attend at least half-time. The credit is available for the first four years of college education. 
• The Lifetime Learning Credit is a non-refundable tax credit of up to $2,000 per tax return, where you can claim qualifying expenses for any level of college or education courses to advance or improve job skills. There is no minimum enrollment requirement or limit on the number of years you can claim the credit. 

“Refundable” means the credit is like a payment on your return. For the AOTC, If that the credit amount is more than you owe, you may get a refund of up to $1,000. 

“Non-refundable” means the credit will only reduce your tax. Even if the credit is more than you owe, you won’t get a refund. 

You can claim both the American Opportunity Tax Credit and the Lifetime Learning Credit on the same tax return, but not for the same student. 

Compare the educational credits to see which fits your situation best

Each credit has different requirements and benefits. You can compare education credits on the IRS’s comparison chart.

Determine your eligibility

You may be eligible to claim an education credit if:

• You, your spouse, or a dependent on your tax return is the student.
• You, your dependent, or a third party (like a relative) is paying qualified education expenses for higher education.
  • Qualified education expenses are tuition, fees, and other related expenses required for enrollment or attendance at an eligible educational institution. Nonacademic fees (like student activity fees or athletic fees) are qualified only if the fee must be paid to the institution as a condition of enrollment or attendance.  Personal expenses (like room and board) are never qualified education expenses.
• The student is enrolled at or attending an eligible educational institution.
  • This means any college, university, vocational school, or other post-secondary educational institution eligible to participate in a student aid program run by the U.S. Department of Education. If you’re not sure your school is eligible, ask the financial aid office.
• Your modified adjusted gross income (MAGI) falls under the limit for the credit (see the IRS’s comparison chart for details).
• For the American Opportunity Tax Credit, the student must also be pursuing a degree or other recognized education credential, and must be enrolled at least half-time for at least one academic period beginning during the tax year (or the first three months of the next tax year if the expenses were paid in the tax year).
• For the Lifetime Learning Credit, the student can be pursuing any course of instruction at an eligible educational institution to acquire or improve job skills. There is no requirement to be enrolled at least half-time. The student can take one or more courses at the qualified institution.

You’re NOT eligible if:

• Someone else, such as your parents, lists you as a dependent on their tax return.
• Your filing status is married filing separately.
• You already claimed or deducted another higher education benefit using the same student or same expenses.
• You (or your spouse) were a non-resident alien for any part of the year and didn’t choose to be treated as a resident alien for tax purposes.
• The student has a felony drug conviction (applies only to a claim for the American Opportunity Tax Credit).
• You, (or your spouse if filing a joint return), and the qualifying student didn’t have a valid taxpayer identification number (Social Security Number (SSN), or Individual Taxpayer Identification Number (ITIN), or Adoption Taxpayer Identification Number (ATIN)) issued or applied for on or before the due date of your return (including extensions).

You can only claim one education credit for any student and their expense. If you or your dependent qualifies for both credits, you may want to figure which deduction would give you the best benefit.

If you receive tax-free educational assistance, such as a grant, you need to subtract that amount from your qualified education expenses.

The PATH Act prevents you from filing past due returns or amended returns claiming the American Opportunity Tax Credit (AOTC) if the reason you’re filing is because you now have the type of valid Taxpayer Identification Number (TIN) required for each credit but such TIN wasn’t issued on or before the due date of the return (including a valid extension).

If for any reason you or one of your family members didn’t receive a valid “taxpayer identification number” on or before the due date of the tax return (including extensions) you can’t file a past due return or an amended return to claim any of these credits. A valid taxpayer identification number could be a SSN, ITIN, or ATIN depending on the requirement for each credit.

For tax years beginning after June 29, 2015, generally 2016 tax year returns, you must have received an IRS Form 1098-T from an eligible educational institution to claim the American Opportunity Tax Credit or Lifetime Learning Credit.

The Taxpayer Advocate Service is an independent organization within the IRS that helps taxpayers and protects taxpayers’ rights. We can offer you help if your tax problem is causing a financial difficulty, you’ve tried and been unable to resolve your issue with the IRS, or you believe an IRS system, process, or procedure just isn’t working as it should. If you qualify for our assistance, which is always free, we will do everything possible to help you.

Visit www.taxpayeradvocate.irs.gov or call 1-877-777-4778.

Low Income Taxpayer Clinics (LITCs) are independent from the IRS and TAS. LITCs represent individuals whose income is below a certain level and who need to resolve tax problems with the IRS. LITCs can represent taxpayers in audits, appeals, and tax collection disputes before the IRS and in court. In addition, LITCs can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. Services are offered for free or a small fee. For more information or to find an LITC near you, see the LITC page on the TAS website or Publication 4134, Low Income Taxpayer Clinic List.

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