Education Credits
Tax credits for higher education expenses. The American Opportunity Credit is worth up to $2,500 per student for the first four years; the Lifetime Learning Credit is up to $2,000 per return.
The IRS offers two main education tax credits: the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). Both reduce your tax bill based on qualified tuition and education expenses, but they have different rules and limits.
The American Opportunity Credit provides up to $2,500 per eligible student for each of the first four years of postsecondary education. It covers tuition, fees, and course materials. Forty percent ($1,000) is refundable. It phases out for single filers with modified AGI between $80,000 and $90,000 ($160,000–$180,000 for MFJ).
The Lifetime Learning Credit is worth up to $2,000 per tax return (not per student) and covers tuition for undergraduate, graduate, and professional degree courses. It has no limit on the number of years you can claim it but is not refundable. The LLC phases out at slightly lower income levels. You cannot claim both credits for the same student in the same year.
Related Terms
Adjusted Gross Income (AGI)
Your gross income minus specific adjustments such as student loan interest, IRA contributions, and self-employment tax. AGI is the starting point for calculating your taxable income.
Tax Liability
The total amount of tax you owe for the year before accounting for payments, withholding, and refundable credits. It is the bottom-line tax calculated on your return.
Above-the-Line Deduction
Deductions subtracted from gross income to arrive at AGI, available regardless of whether you itemize. Examples include IRA contributions, student loan interest, and HSA contributions.