American Opportunity Tax Credit and Other Education Tax Credits for 2023

The American Opportunity Tax Credit and the Lifetime Learning Credit are federal tax credits that can lower your upcoming tax bill if you paid for college in 2023.

You can claim these education tax credits as a student if you're not claimed as a dependent on anyone else's tax return. Parents can claim the credit for a student who is a dependent. Spouses can claim the credit if they use the married filing jointly status.

Here's what you need to know about the American Opportunity Tax Credit, Lifetime Learning Credit and education tax forms.

» MORE: NerdWallet's guide to the best tax software

What is the American Opportunity Tax Credit?

The American Opportunity Tax Credit is a federal tax credit that allows you to lower your tax bill by up to $2,500 if you paid that much in undergraduate education expenses last year.

How the American Opportunity Tax Credit works

The American Opportunity Tax Credit lets you claim all of the first $2,000 you spend on eligible education expenses, plus 25% of the next $2,000, for a total of $2,500. Qualified expenses include:

• Tuition.

• Mandatory school fees.

• Books and supplies.

You may not claim living expenses or transportation costs.

Who can claim the American Opportunity Tax Credit?

The American Opportunity Tax Credit is for undergraduate college students only. To qualify, students must meet the following criteria, according to the IRS:

• Be pursuing a degree or other recognized education credential.

• Be enrolled at least half time for at least one academic period beginning in the tax year.

• Not have finished the first four years of higher education at the beginning of the tax year.

• Not have claimed the American Opportunity Tax Credit for more than four tax years.

• Not have a felony drug conviction at the end of the tax year.

As a student, you can claim the credit on your taxes for a maximum of four years as long as no one else, like your parents, claims you as a dependent on their tax returns. Parents will claim the credit, instead of the student, if they paid for the student's education expenses and have the student listed as a dependent on their return.

Your 2023 modified adjusted gross income, or MAGI, determines how much of the American Opportunity Tax Credit you can claim:

What the American Opportunity Credit is worth

The American Opportunity Tax Credit lowers the amount of taxes you pay. For example, if you owe $3,000 in taxes and get the full $2,500 credit, you’ll only have to pay $500 to the IRS.

Is the American Opportunity Tax Credit refundable?

Yes, it's refundable. 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 Tax Credit is typically the best education tax break for students and their families.

» MORE: Guide to filing taxes with student loans

What is the Lifetime Learning Credit?

The Lifetime Learning Credit is a a federal tax credit that can reduce your taxable income by up to $2,000 if you're pursuing an undergraduate, graduate, vocational or non-degree program. Unlike the American Opportunity Tax Credit, there's no limit to the number of tax years in which you can claim this credit.

How the Lifetime Learning Credit works

You can claim 20% of the first $10,000 you paid toward 2023 tuition and fees, for a maximum of $2,000 each year.

Course supplies, living expenses and transportation costs are not qualified expenses for the Lifetime Learning Credit.

Who can claim the Lifetime Learning Credit?

The Lifetime Learning Credit is 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.

Students can claim the Lifetime Learning Credit for themselves if they file their own taxes. Parents of dependent students can also claim the credit.

To qualify for the Lifetime Learning Credit, you must meet the following criteria, according to the IRS:

• Be enrolled or taking courses at an eligible educational institution.

• Be taking higher education courses to get a degree or other recognized education credential or to get or improve job skills.

• Be enrolled for at least one academic period beginning in the tax year.

Your 2023 modified adjusted gross income, or MAGI, determines how much of the Lifetime Learning Credit you can claim:

Is the Lifetime Learning Credit refundable?

No, the Lifetime Learning Credit is not refundable. You can use the credit to pay any tax you owe, but you won't receive the money back as a refund, even if you earned no income or owe no tax.

» MORE: The difference between tax credits and tax deductions

American Opportunity Tax Credit vs. Lifetime Learning Credit

The American Tax Opportunity Credit is generally more valuable that the Lifetime Learning Credit, if you qualify. You can't claim both the American Opportunity Tax Credit and the Lifetime Learning Credit for the same student or the same qualified expenses.

Here are the key differences between these two education tax credits:

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 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.