Education Tax Credits & Deductions (Updated for 2022 and 2023)

Education costs tend to go up faster than inflation each year, but there are several ways to take advantage of tax breaks to reduce the amount you have to pay out of pocket. For example, you may be able to use tax credits or deductions to reduce your education expenses. You may also be able to use education courses to improve your job skills, which can also give you tax benefits.

Education Tax Credit And Deductions

American Opportunity Tax Credit

Eligibility criteria

  • A student must be pursuing a recognized educational credential such as a certificate or degree
  • Must attend an accredited institution as determined by the US Department of Education
  • Must be half-time for at least one academic period
  • Must not have finished the first four years of college at the beginning of the tax year (and by definition – cannot be a graduate student)
  • Must not be convicted of felony drug conviction at the end of the tax year

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Credit amounts for 2022 and 2023

Per eligible student

  • You can get a tax credit for up to $2,500 to cover tuition, fees, and course materials for the tax year ($10,000 for 4 years)
  • A tax credit is given for the 100% of the first $2,000 and 25% of the next $2,000 paid during the tax year
  • If you owe no tax, you can get 40% or $1,000 refunded to you per calendar year.

What’s not covered

Expenses for transportation, dorm and living expenses, transportation, and medical expenses are eligible for AOTC credit.

Income limits to qualify for the AOTC

  • Your modified adjusted gross income must be $80,000 or less for single filers and $160,000 or less if you are married and filing jointly
  • You can get reduced credit if your modified adjusted gross income is over $80,000 but less than $90,000 for single filers (and over $160,000 but less than $180,000 for married filing jointly)
  • No credit if your modified gross income is greater than $90,000 (singles) and 180,000 (married filing jointly)

Claiming the credit

You can claim the credit by filling out IRS Form 8863 and Form 1098-T, which you will receive from your school. You will need to provide your school’s employer identification number (EIN) on Form 8863.

You must file taxes to get the AOTC. This is the case even if your income is below the minimum standard income required to file income taxes.

Lifetime Learning Credit

The Lifetime Learning Credit is in some ways similar to the AOTC but there are also some key differences.

  • First, you don’t need to get a degree to get the credit – a course to improve your job skills is eligible for credit.
  • AOTIC can only be claimed for four years. There is no limit to the number of years you can claim the LLC.

Eligibility criteria

  • A student must be enrolled at an eligible educational institution
  • Must take a  higher education course (graduate, undergraduate or certificate courses). This includes courses to improve your job skills
  • A student must be enrolled for at least one academic period  in the tax year

Credit Amount for 2022 and 2023

The maximum Lifetime Learning Credit is 20% of up to $10,000 in eligible expenses or $2,000. Eligible expenses include tuition costs, fees, books, and supplies required for taking the courses.

Income limits for 2022

The LLC starts phasing out at a modified adjusted gross income (MAGI) of $80,000 ($160,000  if you file jointly). At a MAGI of $90,000 ($180,000 for joint filers), you will not qualify for Lifetime Learning Credit

Claiming the credit

To claim the Lifetime Learning Credit, you have to fill out form IRS Form 8863. This credit is non-refundable – you cannot get a refund from the IRS if you owe no taxes.

Student loan interest deduction

You can deduct the interest you paid on your student loans from your taxes. This applies to students and parents who are in the process of paying back their loans. You can deduct the lower of $2,500 or the total amount of interest you paid during the tax year. This deduction is an above-the-line adjustment to your income, so you don’t need to itemize to take it.

Other criteria for student loan interest deduction

  • You must have paid interest on a qualified student loan for the tax year
  • Your MAGI is less than $90,000 (or $185,000 if filing jointly). The deduction is phased out gradually between MAGI of $75,000 and $90,000 for single filers (and $155,000 and $185,000 for joint filers)
  • You will receive form 1098-E from the lender if you paid more than $600 in interest for the tax year. If you have more than one lender, you will receive multiple 1098-E forms.
  • Filing status is not married filing separately

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