The article below is written for AIM Financial’s website and focuses on the two education credits claimed through Form 8863. For the 2025 tax return, the American Opportunity Tax Credit can be worth up to $2,500 per eligible student, while the Lifetime Learning Credit can be worth up to $2,000 per return. Income limits, student eligibility, and qualified expenses determine whether a taxpayer can claim either credit.

From AIM Financial — Tax Preparation Services in Grand Rapids, Kentwood, Wyoming, and West Michigan

Paying for college, university, or career-related education can be expensive. Fortunately, eligible taxpayers may qualify for federal education tax credits that help reduce the cost of higher education. Two important benefits are the American Opportunity Tax Credit and the Lifetime Learning Credit.

IRS Form 8863, Education Credits, is used to calculate and claim these credits on an eligible federal income tax return. Understanding the requirements can help students, parents, and other taxpayers avoid missing valuable tax benefits.

AIM Financial helps individuals and families in Grand Rapids, Kentwood, Wyoming, and throughout West Michigan prepare tax returns and understand which education-related tax benefits may apply.

What Is IRS Form 8863?

Form 8863 calculates two federal education credits:

• American Opportunity Tax Credit (AOTC): Designed primarily for eligible students during their first four years of higher education.
• Lifetime Learning Credit (LLC): Available for eligible undergraduate, graduate, and certain career-related education expenses.

Both credits depend on qualified education expenses, the student’s eligibility, and the taxpayer’s income. They are not automatically available to everyone who pays college tuition.

You can find the official form and instructions on the IRS Form 8863 page.

1. American Opportunity Tax Credit

The American Opportunity Tax Credit can provide a credit of up to $2,500 per eligible student for a tax year.

The credit is calculated as:

• 100% of the first $2,000 in adjusted qualified education expenses.
• 25% of the next $2,000 in adjusted qualified education expenses.

To receive the maximum credit, the student generally needs at least $4,000 in qualifying expenses after applicable adjustments.

Who may qualify?

Generally, the student must:

• Be pursuing a degree or other recognized educational credential.
• Be enrolled at least half-time for at least one academic period during the applicable tax year.
• Not have completed the first four years of postsecondary education before that year.
• Not have already had the credit claimed for four tax years.
• Meet the applicable identification number and Form 1098-T requirements.
• Meet other IRS eligibility rules.

The credit is subject to income phaseouts. For 2025 tax returns, the phaseout range is generally $80,000 to $90,000 in modified adjusted gross income for single filers and $160,000 to $180,000 for married couples filing jointly.

Up to 40% of the allowed credit may be refundable for eligible taxpayers, subject to special restrictions. The refundable portion is not available to every student, particularly certain younger students who meet the IRS dependency and support conditions.

2. Lifetime Learning Credit

The Lifetime Learning Credit can be useful for taxpayers who do not qualify for the American Opportunity Tax Credit.

It may apply to eligible education expenses for undergraduate courses, graduate programs, professional development, and certain courses that help a person acquire or improve job skills. The student does not necessarily have to be pursuing a degree.

The credit equals 20% of up to $10,000 in adjusted qualified education expenses, for a maximum of $2,000 per tax return.

Unlike the American Opportunity Tax Credit, the Lifetime Learning Credit is nonrefundable. It can reduce the federal income tax owed, but it cannot generate a refund beyond the applicable tax liability.

The same 2025 income phaseout ranges generally apply: $80,000 to $90,000 for single filers and $160,000 to $180,000 for married couples filing jointly.

A taxpayer cannot claim both credits for the same student in the same tax year. However, different students on one family’s return may qualify for different credits, provided all requirements are met.

What Education Expenses Qualify?

Qualified expenses generally include eligible tuition and required fees. Certain books, supplies, and equipment may also qualify, depending on the credit and how the items are required or purchased.

Expenses that generally do not qualify include:

• Room and board.
• Transportation and commuting.
• Insurance and medical expenses.
• Personal living expenses.
• Certain optional fees and nonqualifying course costs.

Tax-free scholarships, grants, and other educational assistance may reduce the expenses that can be used to calculate a credit. The same expense cannot be used more than once to claim overlapping tax benefits.

Keep tuition statements, account statements, receipts, scholarship information, and records of payments so that qualifying expenses can be substantiated.

What Is Form 1098-T?

Many eligible educational institutions provide Form 1098-T, Tuition Statement, to students. It reports information about tuition payments and other education-related amounts.

Form 1098-T is an important document when preparing Form 8863, but the amount reported on it may not equal the total qualified expenses you actually paid. Review the statement alongside the school’s account records and your receipts.

The IRS generally requires Form 1098-T to claim either credit, subject to specified exceptions. If you do not receive the form, check with the educational institution and review the IRS instructions before claiming a credit.

How Do You Complete Form 8863?

Preparing Form 8863 generally involves these steps:

1. Gather Form 1098-T and records of qualified tuition, fees, books, and required supplies.
2. Confirm the student’s enrollment status, education history, and eligibility.
3. Calculate adjusted qualified expenses after accounting for tax-free assistance and other required adjustments.
4. Review income limits and determine which credit, if any, is available.
5. Complete the appropriate section of Form 8863 for each eligible student.
6. Transfer the calculated credit to the correct lines of the federal income tax return.

Parents should also confirm who is entitled to claim the credit. When a student is claimed as a dependent, the parent generally claims the eligible education credit; special rules apply when the student is not claimed as a dependent.

Common Mistakes to Avoid

Taxpayers should avoid overlooking scholarship adjustments, including room and board as qualified expenses, claiming the same expenses for multiple tax benefits, and assuming that every college student qualifies for the American Opportunity Tax Credit.

Another common mistake is ignoring income phaseouts or failing to confirm how many years the American Opportunity Tax Credit has already been claimed for a student.

If a previously claimed American Opportunity Tax Credit was disallowed or reduced for a reason other than a mathematical or clerical error, Form 8862 may be required before claiming it again.

Get Education Tax Credit Help From AIM Financial

College tax rules can be confusing, particularly when parents and students share education expenses or when scholarships, grants, and student tax returns are involved.

AIM Financial provides tax preparation assistance in Grand Rapids, Kentwood, Wyoming, and throughout West Michigan. We can help review education documents, evaluate eligibility for Form 8863 credits, and prepare your federal and Michigan tax returns.

Contact AIM Financial when preparing your next tax return to discuss whether you or your student may qualify for education tax credits. A careful review can help you avoid errors and take advantage of the benefits available under current tax law.

This article provides general educational information, not individualized tax advice. Credit eligibility, expense limits, and income thresholds depend on the applicable tax year and the taxpayer’s circumstances.