Education tax credits explained

Overview

Education tax credits directly reduce the tax you owe (not just your taxable income), making them very valuable. There are two main education credits, and you can claim only one per student per year.

American Opportunity Tax Credit (AOTC)

The AOTC is the more generous of the two credits and is designed for students in their first four years of college.

Key Details

• **Maximum credit:** $2,500 per eligible student per year
• **How it's calculated:** 100% of the first $2,000 in qualified expenses + 25% of the next $2,000
• **Refundable:** Up to **40% ($1,000)** is refundable—you can get it even if you owe no tax
• **Duration:** Available for the first **4 years** of post-secondary education only

Who Qualifies

• Student must be pursuing a **degree or recognized credential**
• Enrolled at least **half-time** for at least one academic period
• Has **not completed** four years of post-secondary education
• Has **no felony drug conviction**

Income Phase-Outs

Lifetime Learning Credit (LLC)

The LLC is more flexible than the AOTC and available for any level of education.

Key Details

• **Maximum credit:** $2,000 per tax return (not per student)
• **How it's calculated:** 20% of up to $10,000 in qualified expenses
• **Refundable:** No—it can only reduce your tax to $0, not generate a refund
• **Duration:** No limit on the number of years you can claim it

Who Qualifies

• Student can be taking courses to **improve job skills**, earn a degree, or just for personal enrichment at an eligible institution
• No half-time enrollment requirement
• Available for **undergraduate, graduate, and professional** courses
• No felony drug conviction restriction

Form 1098-T

Your school will send you a Form 1098-T showing the amounts billed or paid for qualified tuition and fees. Use this form when entering education credits in FileJoy.

How to Enter in FileJoy

1. Click **Deductions & Credits** in the left sidebar
2. Select **Education credits**
3. Click **Add Student**
4. Enter the student's name and information from Form 1098-T
5. FileJoy will automatically determine which credit is more beneficial and apply it

Tips

• You can't claim both the AOTC and LLC for the **same student** in the same year, but you can claim different credits for different students
• Qualified expenses include tuition and required fees, but **not** room and board, transportation, or insurance
• Books and supplies qualify for the AOTC if required for enrollment
• If you paid with student loans, the expenses still qualify for the credit in the year they were paid