If you’ve ever stood in a campus bookstore holding a $300 textbook and wondered if you could just absorb the knowledge by pressing it to your forehead, we have good news: the IRS might help pay for it. Not the forehead thing, sadly, but the textbook.
Welcome to the world of education credits, where you can potentially reduce your tax bill just for going to school, provided you follow a surprisingly specific list of rules and don’t try to deduct that cafeteria spicy tuna roll you eat religiously.
Meet Your Two Credits
AOTC: The Refundable High-Five
First up is the American Opportunity Tax Credit (AOTC), a tax credit for students in their first four years of higher education, up to $2,500 per student, per year. Even better? 40% (or up to $1,000) of that can be refundable, meaning you might get cash back even if you don’t owe taxes. Yes, the IRS occasionally does nice things. No, this does not mean they’ve gone soft.
The credit has income limits, so not everyone can qualify. For single filers, the full tax break is yours if your modified adjusted gross income (MAGI) is under $80,000, and a smaller credit is available for incomes up to $90,000. For married couples filing jointly, you get the full credit under $160,000 MAGI, and a partial credit up to $180,000. If your income is above those caps, you’re out of luck. Sorry, trust fund babies.
LLC: The Sensible, Non-Refundable Cousin
Then there’s the Lifetime Learning Credit (LLC), which sounds like something your uncle would claim to write off yoga teacher training, but is a decent option for grad students, part-timers, or anyone taking classes to boost their career.
It’s worth up to $2,000 per return, not per student, and unlike AOTC, it’s not refundable. It also doesn’t care how many years you’ve been in school or whether you’re pursuing a degree. It’s the chill, no-judgment credit that just wants to help you learn to code or finally take that welding course.
What Counts (and What Doesn’t)
For AOTC, qualified expenses include tuition, required fees, and course materials, even if you bought your textbook from a sketchy online seller who ships from “Somewhere Near Guam.” For LLC, expenses generally have to be paid directly to the school, and books only count if you paid the institution for them. Either way, room and board don’t qualify, even if your dorm charges more than a downtown studio apartment.
Also required? Form 1098‑T, the tuition statement from your school. You’ll usually get it by January 31, assuming the registrar’s office isn’t still using a fax machine.
A Couple of Regulations for AOTC and LLC
There are a few IRS rules worth tattooing on your forehead (or, more safely, writing down):
- No double dipping: You can’t claim both credits for the same student in the same year. Choose wisely.
- No ghost names: The student’s name and Social Security number must match the school’s records. Otherwise, expect a charming little letter from the IRS asking for clarification (and possibly your firstborn).
How to Claim
Grab your Form 1098‑T, tally your qualified expenses, and fill out Form 8863 when filing your taxes. Yes, there are instructions. Yes, they’re in English. But it’s the special kind of English that mostly only lawyers and the IRS understand.
And if you think the IRS won’t notice if you fudge a few numbers, don’t. Claiming AOTC incorrectly can get you banned from claiming it again for up to ten years. That’s longer than most people stay in grad school.
