In the US tax system, there are two major education-related tax credits provided to students attending universities and vocational schools and their parents: the “American Opportunity Tax Credit” and the “Lifetime Learning Credit.” These credits provide tax relief for tuition and education-related expenses, and each has different terms and characteristics.
American Opportunity Tax Credit (AOTC)
Eligible Person
The American Opportunity Tax Credit (AOTC) is a credit for qualified education expenses paid to eligible students during the first four years of higher education. Offered to students at regular four-year universities or vocational schools. Available to students or their parents.
Requirements
AOTC is intended for students who have not yet completed their first four years of higher education. You are pursuing a degree or other recognized educational qualification, you are enrolled for at least half of at least one academic period beginning in the tax year, and you are not applying for AOTC or old hope credits for more than four tax years. and have not been convicted of a drug offense at the end of the tax year.
Tax Credit Amount
Up to $2,500 per eligible student can be deducted from your taxes, including tuition, enrollment fees, and materials the student needs to study.
Income Limit
In 2022, your modified adjusted gross income (MAGI) must be $80,000 or less to claim the full credit. ($160,000 or less for married filing jointly.) If your MAGI is more than $80,000 but less than $90,000 (more than $160,000 but less than $180,000 for married filing jointly), the credit you receive will be reduced. If your MAGI is $90,000 or more ($180,000 or more for married filing jointly), you cannot claim the tax credit.
Refundable Credit
AOTC is offered as a refundable credit and 40% of the credit may be refunded if your tax liability is zero.
Lifetime Learning Credit （LLC）
Eligible Person
LLC is available to students and professionals pursuing any form of education, not just a typical four-year college. Available to students or their parents.
Requirements
Be enrolled in and taking classes during a qualifying period of education or have taken higher education courses to obtain a degree or other recognized educational qualification, or to gain or improve job skills; You must be registered for at least one semester from the tax year.
Tax Credit Amount
You can deduct 20 percent of the first $10,000 of qualified education expenses, or up to $2,000 form your taxes, per tax return.
Income Limit
In 2022, your modified adjusted gross income (MAGI) must be $80,000 or less to claim the full credit. ($160,000 or less for married filing jointly.) If your MAGI is more than $80,000 but less than $90,000 (more than $160,000 but less than $180,000 for married filing jointly), the credit you receive will be reduced. If your MAGI is $90,000 or more ($180,000 or more for married filing jointly), you cannot claim the tax credit.
Non-Refundable Credit
LLC is non-refundable credit, so you can reduce your income taxes, but if your tax is zero, you won’t get a refund.
What you need to claim a tax credit
Educational Institution Employer Identification Number EIN
To claim the American Opportunity Tax Credit (AOTC) or Lifetime Learning Credit (LLC), you will need your educational institution’s Employer Identification Number (EIN).
Form 1098-T
Additionally, to receive these education expense tax credits, the taxpayer (or dependent) must have received a Form 1098-T, Tuition Statement, from a qualifying educational institution. Typically, students will receive a Form 1098-T tuition statement from their school by January 31st. Please confirm that the information on Form 1098-T is correct. If it is incorrect or you did not receive the form, please contact the school.
Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN)
To claim an AOTC or LLC, you must have a valid taxpayer identification number, such as a Social Security number or Individual Taxpayer Identification Number.
If you don’t have one, you’ll need to apply for an Individual Taxpayer Identification Number (ITIN).
Things to Keep in Mind
Claimable education expenses must be paid by tuition fees and other related expenses to qualify as Qualified education expenses:
・If you are filing a joint return as a married couple, you or your spouse.
・Students who are your dependents on your tax return. or
・Third parties such as relatives and friends.
For tuition fees, you are eligible if you have paid for a period of study that begins during the tax year or the first three months of the next tax year.
The following expenses are not eligible for the education expense tax deduction.
・Room and meal expenses
・Insurance expenses
・Medical expenses
・Transportation expenses
・Personal expenses, living expenses, family expenses
Expenses for sports, games, hobbies or non-credit courses are not tax deductible unless the course or activity is part of the student’s degree program.
However, for Lifetime Learning Credits (LLC) only, these costs are tax deductible if the course helps the student learn or improve job skills.
Both AOTC and LLC credits can be claimed on the same tax return, but not for the same student or the same qualified expenses.
You cannot claim an AOTC or LLC if:
・If someone, such as your parents, lists you as a dependent on their tax return.
・If you are filing a tax return as marriage filing separately.
・You or your spouse are a nonresident alien during any period of the year and do not elect to be treated as a resident alien for tax purposes.
Summary
In the US tax system, there are two main credits available to college and technical school students and their parents: the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC).
AOTC is intended for students attending a four-year college or technical school and is available to students or their parents. Eligible students must not have completed the first four years of higher education and must meet several other conditions. Tax credits of up to $2,500 are provided for expenses related to tuition and materials, and there are income limits. In addition, AOTC is a refundable credit, and if the tax amount is zero, a portion may be refunded.
LLC, on the other hand, is not limited to four-year colleges, but is intended for students and professionals pursuing any form of education. There are necessary conditions, deduction amounts, income limits, etc., and since LLC is a non-refundable credit, it can reduce the amount of income tax, but if the tax is zero, no refund will be given.
We have explained what information and documents you need to claim a tax credit, as well as when you may not be able to claim a tax credit.
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