University Students: Tax Credits And You

University students can claim tax credits to reduce the amount of tax they owe. The two main types of education tax credits available are the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). The AOTC is worth up to $2,500 per eligible student per year and is available for the first four years of higher education. The LLC is worth up to $2,000 per tax return per year and can be claimed for all years of post-secondary education. To be eligible to claim either of these credits, a taxpayer or a dependent must have received a Form 1098-T, Tuition Statement, from an eligible educational institution.

American Opportunity Tax Credit (AOTC)

The American Opportunity Tax Credit (AOTC) is a tax credit for qualified education expenses paid for an eligible student for the first four years of higher education. The maximum annual credit per student is $2,500, and it's partially refundable, meaning that if your tax bill is reduced to $0, you can receive up to $1,000 as a refund. The credit amount is equal to 100% of the first $2,000 of qualified expenses plus 25% of the expenses in excess of $2,000.

To be eligible for the AOTC, a student must be pursuing a degree or other recognised education credential and be enrolled at least half-time for at least one academic period. The student must not have finished the first four years of higher education at the beginning of the tax year or have claimed the AOTC or the former Hope Credit for more than four tax years. Additionally, the student must not have a felony drug conviction at the end of the tax year.

To claim the AOTC, you must complete Form 8863 and attach it to your tax return. You should also ensure that you receive Form 1098-T, a Tuition Statement, from an eligible educational institution. This form will outline your tuition and fees and help you figure out your credit.

The AOTC is a valuable tool for students or their parents to reduce the cost of attending college. It is essential to carefully review the eligibility requirements and complete the necessary forms to take advantage of this tax credit.

Lifetime Learning Credit (LLC)

The Lifetime Learning Credit (LLC) is a provision of the U.S. federal income tax code that allows students and parents to reduce their tax liability by up to $2,000 per tax return per year to help pay for higher education expenses. This credit can be claimed for all years of post-secondary education and for courses to acquire or improve job skills. It is not limited to the first four years of post-secondary education, unlike the American Opportunity Tax Credit.

The LLC is worth up to $2,000 or 20% of the first $10,000 of qualified education expenses each tax year, depending on your modified adjusted gross income (MAGI). The credit is gradually reduced if your MAGI is between $80,000 and $90,000 ($160,000 and $180,000 for joint filers). You cannot claim the credit if your MAGI is $90,000 or more ($180,000 or more for joint filers).

To be eligible for the LLC, the student must be enrolled or taking courses at an eligible educational institution. This includes colleges, universities, vocational schools, or other post-secondary educational institutions eligible to participate in a Federal student aid program run by the U.S. Department of Education. The student must also be taking higher education courses towards a degree or other recognised education credential, or to get or improve job skills.

Eligible expenses for the LLC include tuition and required fees and course materials. You cannot claim expenses paid for with tax-free scholarships, grants, or fellowships. To claim the LLC, you must complete Form 8863 and attach it to your Form 1040 or Form 1040-SR.

Student loan interest deduction

The student loan interest deduction is a potential tax deduction that can help make higher education expenses more affordable. It is important to note that this deduction is different from tax credits and only applies to interest paid on a qualified student loan.

A qualified student loan is a loan taken out solely to pay for qualified higher education expenses, including tuition, fees, and course materials. The loan must have been taken out for you, your spouse, or a dependent, and the education must have been provided during an academic period for an eligible student.

Who Can Claim the Deduction?

To claim the student loan interest deduction, you must meet the following requirements:

• You must have paid interest on a qualified student loan during the tax year.
• You must be legally obligated to pay interest on the loan.
• Your filing status cannot be married filing separately.
• Your Modified Adjusted Gross Income (MAGI) must be below a certain threshold, which is set annually. For the 2023 tax year, the threshold was $70,000 for single filers and $140,000 for married couples filing jointly. The deduction starts to phase out above these income levels and is completely eliminated at $85,000 for single filers and $175,000 for married couples filing jointly.
• Neither you nor your spouse can be claimed as a dependent on someone else's tax return.

The maximum deduction for student loan interest is $2,500 per tax return, per year. This means that if you are eligible, you can deduct up to $2,500 of the interest you paid on your student loans from your taxable income. This deduction can help lower your tax liability and, in some cases, your tax bracket.

To claim the student loan interest deduction, you will need to fill out the necessary tax forms, such as Form 1040 or Form 1098-E, which includes information about the interest you paid on your student loans. You can claim the deduction as an adjustment to your income, and you don't need to itemize your deductions.

Earned Income Tax Credit (EITC)

The Earned Income Tax Credit (EITC) is a tax break available to low- and moderate-income earners. It is a refundable tax credit that reduces the amount of tax owed on a dollar-for-dollar basis. If the EITC is greater than the amount of tax owed, the taxpayer may be eligible for a refund of taxes already paid by payroll deduction during the year.

The EITC is available to taxpayers with low or moderate earnings, with or without qualifying dependents. To claim the credit, a taxpayer must be at least 19 years old and must live in the United States for more than half of the tax year. The credit percentage, earnings cap, and credit amount vary according to a taxpayer's filing status and number of dependents. Qualifying dependents can include children under 19, students under 24, or family members with a disability.

The EITC is one of the most important tax credits available to individual taxpayers. The taxpayer must be a U.S. citizen or resident alien for the entire year and have a valid Social Security number by the tax return's due date.

The amount of credit that can be claimed on a tax return depends on the taxpayer's annual earned income for the tax year, filing status, and number of qualified dependents. The credit amount also depends on income, filing status, and the number of qualifying children.

To qualify for the EITC, a taxpayer's earned income and adjusted gross income (AGI) must be below certain income limits. The limits on income level, credit amount, and investment income vary depending on the number of qualifying dependents in the household. For example, for the 2025 tax year, the maximum earned income tax credit is $8,048 for a taxpayer with three or more children.

The EITC is a federal tax credit designed to provide financial assistance to low-to-moderate-income working individuals and families. It reduces the amount of tax owed and can result in a refund for eligible taxpayers.

Child Tax Credit (CTC)

The Child Tax Credit (CTC) is a tax benefit available to people with dependent children under 17. The base credit is worth $2,000, but it is reduced based on modified adjusted gross income (MAGI) levels, meaning high earners may receive a smaller credit or be ineligible. As a nonrefundable tax credit, the CTC reduces taxes owed dollar-for-dollar, though some may qualify for a partial refund.

For 2024 (taxes filed in 2025), the CTC is worth up to $2,000 per qualifying dependent child, with a refundable portion, also known as the additional child tax credit (ACTC), of up to $1,700. To be eligible for the full credit amount, your MAGI must be $400,000 or below (married filing jointly) or $200,000 or below (all other filers). If your MAGI exceeds these limits, the credit is reduced by $50 for every $1,000 of income above the threshold until it phases out completely.

To qualify for the CTC, you and your qualifying child must meet seven "tests": age, relationship, dependent status, residency, financial support, citizenship, and income. Firstly, your child must be under 17 at the end of the tax year. Secondly, the child must be your son, daughter, stepchild, foster child, brother, sister, half-sibling, or a descendant of any of these. Thirdly, you must be able to claim the child as a dependent, and they cannot file a joint tax return unless it is to claim a refund of withheld income taxes or estimated taxes paid. Fourthly, the child must have lived with you for at least half the year, with some exceptions. Fifthly, you must have provided at least half of the child's support during the last year. Sixthly, per the IRS, your child must be a "U.S. citizen, U.S. national, or U.S. resident alien" with a valid Social Security number. Lastly, parents or caregivers claiming the credit cannot exceed certain income requirements.

If you qualify for the CTC but cannot take full advantage because you owe less in taxes than your credit amount, you may be able to get a partial refund by claiming the ACTC. To claim the ACTC, all of the above income and dependent criteria must be met, but there are additional rules. You must either have an earned income of at least $2,500 or have three or more qualifying dependents. Earned income typically means money from jobs or self-employment, not passive sources such as dividends or pensions. You or your partner (if married filing jointly) cannot exclude foreign-earned income from your taxes by filing Form 2555 or Form 2555-EZ. The IRS calculates your ACTC amount by multiplying your earned income above $2,500 by 15%. You can claim this amount or the CTC credit you were entitled to but couldn't fully use, whichever is less.

You can claim the 2024 CTC on the tax return (Form 1040) filed in 2025, along with Schedule 8812 ("Credits for Qualifying Children and Other Dependents"). Most quality tax software guides you through claiming the CTC with a series of interview questions, simplifying the process and auto-filling the forms.

Frequently asked questions