What is an Education Tax Credit?

Educational tax credits are specifically for individuals engaged in either part-time or full-time education. These credits target individuals with educational expenses, allowing them to offset these expenses against their total tax liability.

education tax credit

We’re going to go through the main tax breaks and credits and how to claim an education tax credit.

Table of Contents

American Opportunity Credit

The American Opportunity Credit provides you with a chance to get $2,500 off your taxes in education expenses if you happen to be a student who qualifies.

You must be enrolled at a school that’s part of the Federal Student Aid Program. It’s available for the initial four years of attendance, and you must be enrolled as a half-time student, at the very least. You also can’t have any felony drug convictions.

The credit covers everything from tuition fees to the textbooks you have to buy. $1,000 of the credit is fully refundable.

Who is an Eligible Student for AOTC?

To be eligible to claim the AOTC, the student must:

  • Be pursuing a degree or other recognized education credential
  • Be enrolled at least half-time for at least one academic period* beginning in the tax year
  • Not have finished the first four years of higher education at the beginning of the tax year
  • Not have claimed the AOTC or the former Hope credit for more than four tax years
  • Not have a felony drug conviction at the end of the tax year

Academic Periods: Academic periods can be semesters, trimesters, quarters or any other period of study such as a summer school session. The schools determine the academic periods. For schools that use clock or credit hours and do not have academic terms, the payment period may be treated as an academic period.

Lifetime Learning Tax Credit

The lifetime learning credit (LLC) is for qualified tuition and related expenses paid for eligible students enrolled in an eligible educational institution.

This credit can help pay for undergraduate, graduate and professional degree courses — including courses to acquire or improve job skills.

There is no limit on the number of years you can claim the credit. It is worth up to $2,000 per tax return.

Who Can Claim the LLC?

To claim the LLC, you must meet all three of the following:

  1. You, your dependent, or a third party pay qualified education expenses for higher education.
  2. You, your dependent, or a third party pay the education expenses for an eligible student enrolled at an eligible educational institution.
  3. The eligible student is yourself, your spouse or a dependent you listed on your tax return.

Student Loan Interest Deduction

Student loan interest is the interest you paid during the year on a qualified student loan. It includes both required and voluntarily prepaid interest payments. You may deduct the lesser of $2,500 or the amount of interest you actually paid during the year.

The deduction is gradually reduced and eventually eliminated by phaseout when your modified adjusted gross income (MAGI) amount reaches the annual limit for your filing status. You can claim this deduction as an adjustment to income, so you don't need to itemize your deductions.

You can claim the deduction if all of the following apply:

  • You paid interest on a qualified student loan in tax year 2023 and 2024;
  • You're legally obligated to pay interest on a qualified student loan;
  • Your filing status isn't married filing separately;
  • Your MAGI is less than a specified amount which is set annually, and
  • Neither you nor your spouse, if filing jointly, were claimed as dependents on someone else's return. Another taxpayer is claiming you as a dependent if they list your name and other required information on page 1 of their Form 1040, 1040-SR, or 1040-NR.

A qualified student loan is a loan you took out solely to pay qualified higher education expenses that were:

  • For you, your spouse, or a person who was your dependent when you took out the loan;
  • For education provided during an academic period for an eligible student and
  • Paid or incurred within a reasonable period of time before or after you took out the loan.

Educator Expense Deduction

If you're an eligible educator, you can deduct up to $300 ($600 if married filing jointly and both spouses are eligible educators, but not more than $300 each) of unreimbursed trade or business expenses.

Qualified expenses are amounts you paid or incurred for participation in professional development courses, books, supplies, computer equipment (including related software and services), other equipment, and supplementary materials that you use in the classroom.

For courses in health or physical education, the expenses for supplies must be for athletic supplies. Qualified expenses also include the amounts for personal protective equipment, disinfectant, and other supplies used for the prevention of the spread of coronavirus.

You're an eligible educator if, for the tax year you're a kindergarten through grade 12 teacher, instructor, counselor, principal or aide for at least 900 hours a school year in a school that provides elementary or secondary education as determined under state law.

Qualified expenses are deductible only to the extent the amount of such expenses exceed the following amounts for the tax year:

  • The interest on series EE and I U.S. savings bonds that you exclude from income because you paid qualified higher education expenses,
  • Any distribution from a qualified state tuition program that you exclude from income,
  • Any tax-free withdrawals from your Coverdell education savings accounts,
  • Any reimbursements you receive for expenses that aren't reported to you in box 1 of your Form W-2.

How to Claim Education Tax Credits and Deductions

If you prepare your taxes with TurboTax Online, they will guide you to the education tax credits and deductions that will give you the biggest tax breaks.

Choose the appropriate credit, such as the American Opportunity Credit or the Lifetime Learning Credit, and then TurboTax will help you claim it.

If you received Form 1098-T from your educational institution, enter the information from the form into TurboTax. This form summarizes your qualified education expenses.