Paying for College

Tax Credits for College Expenses

With the American Opportunity Credit and the Lifetime Learning credit, Uncle Sam helps you defray some of the costs of getting a higher education.

These tax benefits put the money you spend on qualified educational expenses back in your pocket. (A tax credit is a dollar-for-dollar reduction of your tax liability.) You have to choose which benefit to claim because you cannot use the same expenses to claim more than one benefit.

American Opportunity Credit

This credit is available for expenses incurred by students who are in their first four years of undergraduate study and attended college at least half-time for an academic period that began in the tax year for which you're filing. If you've already claimed this credit or the former Hope credit, for more than four tax years, you are no longer eligible.

A parent, spouse or student who is not claimed as a dependent can take a federal income-tax credit equal to 100% of the first $2,000 spent on qualified education expenses—tuition, fees and textbooks—and 25% of the next $2,000, for a total credit of $2,500 for each qualifying student. If the credit more than wipes out your tax liability for the year, you’ll get a refund check from the IRS for 40% of the remaining amount, up to $1,000, for each qualifying student.

Married couples filing jointly qualify for the full credit with a modified adjusted gross income of $160,000 or less, and single filers qualify with an income of $80,000 or less. The credit phases out completely at $180,000 for married couples and $90,000 for single filers.

Lifetime Learning Credit

With this credit, you can claim 20% of your out-of-pocket costs for tuition, fees and books, up to $10,000, for a total of $2,000. Unlike the American Opportunity credit, the Lifetime Learning credit is not limited to undergraduate educational expenses, nor does the credit apply only to students attending at least half-time. You can claim the credit for yourself, your spouse or your dependent up to $2,000 per family each year.

For 2019 tax returns, you qualify for the benefit if your modified adjusted gross income is no higher than $136,000 for married couples filing jointly or $68,000 for single filers ($138,000 and $69,000, respectively, for 2020). Couples get the full 2019 credit at $116,000; singles at $58,000 ($118,000 and $59,000 for 2020).

For more about both of these tax credits and other education benefits, see IRS Publication 970.

Most Popular

Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
4 Strategies to Reduce Taxes in Retirement
retirement planning

4 Strategies to Reduce Taxes in Retirement

Don’t let the possibility of higher taxes in the future sink your retirement income plan. Consider these four ways to help manage your taxes, keeping …
May 31, 2021
10 States With the Highest Sales Taxes
Tax Breaks

10 States With the Highest Sales Taxes

Before you embark on a shopping spree in any of the 10 worst states for sales taxes, make extra room in your budget.
June 16, 2021

Recommended

18 States With Scary Death Taxes
inheritance

18 States With Scary Death Taxes

Federal estate taxes are no longer a problem for all but the extremely wealthy, but several states have their own estate taxes and inheritance taxes t…
June 17, 2021
Taxes on Unemployment Benefits: A State-by-State Guide
state tax

Taxes on Unemployment Benefits: A State-by-State Guide

Don't be surprised by an unexpected state tax bill on your unemployment benefits. Know where unemployment compensation is taxable and where it isn't.
June 17, 2021
The 10 Least Tax-Friendly States for Middle-Class Families
state tax

The 10 Least Tax-Friendly States for Middle-Class Families

Failing to consider state and local taxes before moving your family to another state could cost you thousands of dollars each year.
June 17, 2021
10 Least Tax-Friendly States for Retirees
retirement

10 Least Tax-Friendly States for Retirees

When it comes to state and local taxes, retirees in these states are likely to pay more than retirees in other states.
June 17, 2021