Education Tax Credit

In addition to loans and grants, the federal government offers a series of tax benefits for college students and their parents. This credit offsets the cost of tuition, fees, textbooks, supplies, and equipment for higher education by reducing the amount of income tax you are liable for.

There are two tax credits available to help you offset the costs of higher education by reducing the amount of your income tax. The two main higher education tax benefits are the American Opportunity Credit and Lifetime Learning Credit.

The American Opportunity Credit provides up to $2,500 in tax credits based on the first $4,000 in postsecondary education expenses paid by the taxpayer during the tax year.

The Lifetime Learning Credit, on the other hand, provides a tax credit of up to $2,000 for anyone who takes college classes. Unlike the American Opportunity credit, you need not be in the first 4 years of undergraduate classes.

Differences between the American Opportunity & Lifetime Learning Credits

There are several differences between these two credits. For example, you can claim the American opportunity credit for no more than 4 tax years¹, which includes any tax years you claimed the Hope credit. However, there is no limit on the number of years for which you can claim a lifetime learning credit.

In order to be eligible for this American opportunity credit, you must have an adjusted gross income of between $80,000 – $90.000 ($160,000 – $180,000 if filing a joint return). On the other hand, the Lifetime learning credit is for those whose adjusted gross income must not exceed $60,000 ($120,000 for joint returns).²

In addition, you cannot claim both the Hope or American opportunity and lifetime learning credits for the same student in one year.

Other Tax Benefits for Higher Education

Below are some of the other tax incentives for higher education designed to help to offset your education expenses.³

1. the Tuition and Fee Deduction;
2. the Student Loan Interest Deduction;
3. Coverdell Education Savings Accounts;
4. Qualified Tuition Program (529 Plans);
5. the tax-free status of scholarships, fellowships, grants, and tuition discounts for degree candidates;
6. the tax-free value of student loan cancellations;
7. the education exception to taxation on early withdrawals from individual retirement accounts;
8. the Education Savings Bond Program (if savings bonds are cashed in for education expenses, the bond is not included in taxable income);
9. the tax-free value of employer-provided education assistance;
10. the business deduction for work-related education expenses.

For the most detailed and current information regarding these credits, view the IRS’ Education Credits.

If you need additional help, The New York Times posted a five-part series of questions and answers related to education tax credits and tax breaks.

1. AOC will be available only for the years 2009 through 2012, unless Congress decides to extend the credit to another years. [↩]
2. Source: IRS Publication 970 (pdf) [↩]
3. Source: New American Foundation [↩]