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If you paid for college in the last year, you may be able to claim the American opportunity credit or lifetime learning credit, or the the tuition and fees deduction. The American opportunity credit is generally the most valuable education tax credit, if you qualify.
You can claim these education tax credits and deductions even if you paid for school with a student loan. Parents can take advantage, too, so long as they don't choose a married filing separately status. Here's what to know about each option.
American opportunity credit
How it works: You can lower your tax bill by up to $2,500 if you paid that much in undergraduate education expenses last year. The American opportunity tax credit lets you claim all of the first $2,000 you spent on tuition, school fees and books or supplies needed for coursework — but not living expenses or transportation — plus 25% of the next $2,000, for a total of $2,500.
Who can claim it: The American opportunity credit is specifically for undergraduate college students and their parents. You can claim the credit on your taxes for a maximum of four years. Your parents will claim the credit if they paid for your education expenses, and you’re listed as a dependent on their return.
You can get the full education tax credit if your modified adjusted gross income, or MAGI, was $80,000 or less in 2021 ($160,000 or less if you file your taxes jointly with a spouse). If your MAGI was between $80,000 and $90,000 ($160,000 and $180,000 for joint filers), you’ll end up with a reduced credit. If you earn more than that, you can’t claim this credit.
What it’s worth: The American opportunity credit cuts the amount of taxes you pay. If you owe $3,000 in taxes and get the full $2,500 credit, for example, you’ll have to pay only $500 to the IRS.
Is the American opportunity credit refundable? Yes. You can still receive 40% of the American opportunity tax credit's value — up to $1,000 — even if you earned no income last year or owe no tax. For example, if you qualified for a refund, this credit could increase the amount you'd receive by up to $1,000. That's why the American opportunity credit is typically the best education tax break for students and their families.
Lifetime Learning Credit
How it works: You can claim 20% of the first $10,000 you paid toward 2021 tuition and fees, for a maximum of $2,000. The lifetime learning credit doesn’t count living expenses or transportation as eligible expenses.
Who can claim it: The lifetime learning credit isn’t just for undergrads or their parents. The credit applies to undergraduate, graduate and non-degree or vocational students, and there’s no limit on the number of years you can claim it. So it’s ideal for graduate students or anyone taking classes to develop new skills, even if you already claimed the American opportunity tax credit on your taxes in the past. You can't claim both the American opportunity credit and the lifetime learning credit in the same year.
What it’s worth: You can claim the credit if your MAGI was less than $59,000 ($118,000 if you filed jointly) last year. If your MAGI was between $59,000 and $69,000 ($118,000 to $138,000 if you filed jointly), you can get a reduced credit. You can’t get the credit if your MAGI was more than $69,000 ($138,000 if you're married and filing jointly).
Is the lifetime learning credit refundable? No. You cannot receive the lifetime learning credit as a refund if you earned no income or owe no tax.
Education tax forms
In January your school will send you Form 1098-T, a tuition statement that shows the education expenses you paid for the year. You’ll use that form to enter the corresponding amounts on your tax return to claim an education tax credit or deduction.
If you or your parents also paid student loans, you may be able to deduct student loan interest from your taxable income. If you paid more than $600 in interest, your servicer will automatically send you Form 1098-E. You can still deduct interest if you paid less than $600, but you’ll have to ask your servicer for the form.
If your company provided funds for educational assistance — like tuition reimbursement or employer student loan repayment — up to $5,250 may not be counted as taxable income. Student loan payments must have been made after March 27, 2020 to be eligible.