The 2 Education Tax Credits for 2021 Taxes

General

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Who wouldn’t like to pay a little less income tax? If you’re currently attending college, or have a child in college, you may be eligible for one of two important tax credits that can help offset the costs of higher education.

A tax credit is a dollar-for-dollar reduction in the amount of tax you owe. Reducing the amount you owe Uncle Sam each year could mean putting money back in your pocket that you can use to pay for education costs.

Here’s how education tax credits work, how to know if you’re eligible for one, and what to do to claim any credit you qualify for.

The 2 education tax credits

When you file your 2021 taxes, you may be eligible to claim the American opportunity tax credit or the lifetime learning credit. Here’s an overview of the two:

What to know for 2021 taxes	American opportunity tax credit (AOTC)	Lifetime learning credit (LLC)
Maximum credit amount	$2,500 per eligible student	$2,000 per tax return
Number of years you can claim	4 years per eligible student	No limit
Income limit	$180,000 modified adjusted gross income if married filing jointly $90,000 MAGI if single, head of household, or qualifying widow(er)	$138,000 MAGI if married filing jointly $69,000 MAGI if single, head of household, or qualifying widow(er)
Eligible expenses	Tuition Fees required for enrollment Necessary course materials	Tuition Fees
Eligibility requirements	Undergrads Pursuing degree or recognized education credential Enrolled at least half-time	Must have qualifying education expenses Must take at least one course Must be enrolled at an eligible educational institution
Refundable?	Yes, 40% of the credit amount (up to $1,000)	No

American opportunity tax credit (AOTC)

The AOTC is available for the first four years of your college education, so if you qualify for it, you (or your parents, if you’re a dependent) could claim it while you’re still in school.

Maximum available amount

The AOTC is worth a maximum of $2,500 — 100% of the first $2,000 of your qualified education expenses and 25% of the next $2,000. That amount is per eligible student each year the student qualifies. That means if you’re a parent with a college freshman and a college senior, and you’re eligible for the full credit amount, you could claim $5,000 for the AOTC.

Keep in mind: The amount of credit you qualify for is based on your modified adjusted gross income, or MAGI. For most people, MAGI is the same as the adjusted gross income shown on their tax return. The closer your MAGI gets to the income limits, the less your credit amount will be. If your MAGI exceeds the limits, you won’t be eligible for the credit at all.

Learn More: 8 Steps If Your Parents Won’t Help Pay for College

Eligible expenses for claiming the AOTC

To claim the AOTC, you must have paid eligible education expenses for yourself, your spouse, or a dependent whom you claim on your tax return. Eligible expenses include:

Qualified tuition to attend an eligible educational institution
Any fees required to enroll in the school (for example, if your school requires you to pay for a meal plan)
Required course materials, like textbooks

Tip: Although you’re not required to submit receipts when you file your tax return, it’s a good idea to keep documentation of all your education expenses.

Who qualifies for the AOTC?

Not everyone can claim the AOTC. Generally, you may qualify for the credit if:

You paid eligible higher education expenses for yourself, a spouse, or dependent. This means either a parent or student can qualify, depending on who paid the student’s college tuition. But a student can’t claim the AOTC if their parents claim them as a dependent — even if the student files their own tax return.
You haven’t completed four years of school. If you’re in grad school, or are taking a bit longer to complete your undergraduate degree, you can’t claim the AOTC. But you may be able to qualify for the lifetime learning credit.
You’re pursuing a degree or other education credential. You can’t qualify for the AOTC if you’re taking a class for fun.
You’re enrolled at least half-time. If you’ve only been taking a course or two per semester, you won’t qualify for this credit.
Your MAGI doesn’t exceed the stated limits. If your MAGI exceeds the limits, you won’t be eligible to claim the AOTC.

Good to know: You may be eligible for an education tax credit even if you don’t have student loans. While the student loan interest deduction is only available to people with qualifying student loans, the American opportunity credit and lifetime learning credit are available to anyone with qualifying expenses.

Is the AOTC refundable?

The AOTC is a refundable tax credit. That means if your credit brings the amount of tax you owe to zero, you can get money back in the form of a tax refund. For the AOTC, you can get 40% of your total credit amount refunded — up to $1,000 maximum.

Here’s an example of how it can work:

2021 tax obligation	$1,500	$0
Amount of AOTC you qualify for	$2,500	$2,500
Remaining credit amount	$1,000	$2,500
Refundable amount of credit	$400 (40% of $1,000)	$1,000 (40% of $2,500)

How to claim the AOTC

By Jan. 31, your college should send you a Form 1098-T Tuition Statement for tuition and other education expenses you paid during the previous year. Hold onto it until tax season.
When you’re ready (or your parents if they claim you as a dependent) to file your federal 1040 income tax return, you’ll use IRS Form 8863 to calculate and claim your AOTC and other education credits. You’ll use information from your 1098-T to complete Form 8863.
Prepare and file your return. You can have a qualified tax professional do this for you, or you can use DIY tax software.

Keep in mind: It’s important to calculate your credit correctly. If you claim the AOTC when you’re not eligible for it, the IRS could ban you from claiming it for two to 10 years.

Lifetime learning credit (LLC)

If you’re paying for graduate school or taking professional courses, you may be eligible for the lifetime learning credit. Unlike the AOTC, the lifetime learning credit has no limit on the number of years you can claim it.

Maximum available amount

The most you can claim for the LLC is $2,000 per tax return. This means if you’re a parent with two dependent children in graduate school, the most you could qualify for is $2,000, regardless of how much tuition and education-related expenses you actually paid.

As with the AOTC, your MAGI also affects the amount of credit you can claim.

Eligible expenses for claiming the LLC

The LLC won’t cover as much of your college expenses as the AOTC does. LLC expenses generally include:

Tuition
Fees required to enroll in school
Fees required to attend your college

To claim the credit, you must have paid eligible education expenses for yourself, your spouse, or a dependent whom you claim on your tax return.

Learn More: Do Student Loans Count as Income on My Taxes?

Who qualifies for the LLC?

You may be able to claim the LLC if:

You’re enrolled in grad school and taking one or more courses.
You’re taking one or more courses to improve your job skills.
You don’t have to be pursuing a degree or other education credential.
Your MAGI is within the income limits.
You’re paying eligible expenses for a dependent student who meets the other requirements for claiming the LLC.

Is the LLC refundable?

The lifetime learning credit isn’t refundable — even if claiming it reduces your tax obligation to zero. Here’s an example of how the LLC could work:

2021 tax obligation	$2,000	$0
Amount of LLC you qualify for	$2,000	$2,000
Remaining credit amount	$0	$2,000
Refundable amount of credit	$0	$0

How to claim the LLC

The process for claiming the LLC is the same as for claiming the AOTC. You’ll complete and file Form 8863 with your federal tax return, using information from your 1098-T.

Keep in mind: You can’t claim the AOTC and the LLC in the same tax year for the same student. But you can claim both credits on the same return if you claim them for different students. For example, if you have a son who’s a college freshman and a daughter in her first year of grad school — and you claim them both as dependents on your tax return — you could get the AOTC for your son and the LLC for your daughter.

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Lender	Fixed Rates From (APR)	Variable Rates From (APR)
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Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.	3.48%+¹	N/A
Fixed APR: 3.48%+¹ Variable APR: N/A Min. credit score: 720 Loan amount: $1,000 to $350,000 Loan terms (years): 5, 10, 15 Loan types: Any private or federal student loan Repayment options: Full deferral, full monthly payment, interest only, immediate repayment, academic deferment, military deferment, forbearance, loans discharged upon death or disability Fees: Late fee Discounts: Autopay, loyalty Eligibility: Available in all 50 states (international students can apply with a creditworthy U.S. citizen or permanent resident cosigner) Customer service: Email, phone, chat Soft credit check: Yes Cosigner release: After 36 months Loan servicer: Firstmark Services
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.	2.99%+^2,3	0.94%+^2,3
Fixed APR: 2.99%+^2,3 Variable APR: 0.94%+^2,3 Min. credit score: Does not disclose Loan amount: $1,000 up to cost of attendance Loan terms (years): 5, 8, 10, 15, 20 Repayment options: Full deferral, full monthly payment, fixed/flat repayment, interest only, immediate repayment, academic deferment, forbearance, loans discharged upon death or disability Fees: Late fee Discounts: Autopay Eligibility: Must be a U.S. citizen or permanent resident and be making satisfactory academic progress. Customer service: Email, phone Soft credit check: Yes Cosigner release: After 24 months Loan servicer: College Ave Servicing LLC
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.	3.2%+	1.09%+
Fixed APR: 3.2%+ Variable APR: 1.09%+ Min. credit score: Does not disclose Loan amount: $1,000 to $99,999 annually ($180,000 aggregate limit) Loan terms (years): 7, 10, 15 Repayment options: Full deferral, immediate repayment, interest-only repayment, flat/full repayment, academic deferment, military deferment, forbearance, loans discharged upon death or disability Fees: None Discounts: Autopay Eligibility: Not available to residents of AZ, IA, or WI Customer service: Phone, email Soft credit check: Yes Cosigner release: After 36 months Loan servicer: American Education Services Min. income: Does not disclose
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Fixed APR: 3.02%+⁷ Variable APR: 2.63%+⁷ Min. credit score: 750 Loan amount: $1,000 to $200,000 Loan terms (years): 7, 10, 15 Repayment options: Full deferral, full monthly payment, interest only, immediate repayment, academic deferment, loans discharged upon death or disability Fees: Late fee Discounts: Autopay Eligibility: Must be a U.S. citizen or permanent resident and have a minimum income of $30,000. Customer service: Email, phone Soft credit check: Yes Cosigner release: After 36 months Loan servicer: Granite State Management & Resources (GSM&R)
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Fixed APR: 3.33%+⁸ Variable APR: 1.7%+⁸ Min. credit score: 670 Loan amount: $1,001 up to cost of attendance Loan terms (years): 5, 10, 15 Repayment options: Full deferral, full monthly payment, interest only, immediate repayment, academic deferment, forbearance Fees: Late fee Discounts: Autopay, reward for on-time graduation Eligibility: Must be an Indiana resident or a U.S. citizen attending an eligible Indiana school Customer service: Email, phone, chat Soft credit check: Yes Cosigner release: After 48 months Loan servicer: American Education Services
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Fixed APR: 3.75%+ Variable APR: N/A Min. credit score: 670 Loan amount: $1,500 up to cost of attendance less aid Loan terms (years): 10, 15 Repayment options: Full deferral, interest only, immediate repayment, academic deferral, forbearance Fees: None Discounts: None Eligibility: Must be a U.S. citizen or permanent resident and be making satisfactory academic progress. Customer service: Email, phone Soft credit check: Yes Cosigner release: After 48 months Loan servicer: American Education Services (AES)
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Fixed APR: 3.5% – 12.6% APR⁹ Variable APR: 1.13% – 11.23% APR⁹ Min. credit score: Does not disclose Loan amount: $1,000 up to cost of attendance Loan terms (years): 10 to 15 Repayment options: Full deferral, fixed/flat repayment, interest only, academic deferment, forbearance, loans discharged upon death or disability Fees: Late fee Discounts: Autopay Eligibility: Must be a U.S. citizen or permanent resident. Also available to non-U.S. citizen students (including DACA students) attending a school located in the U.S. who apply with a qualifying cosigner. Customer service: Phone, chat Soft credit check: Yes Cosigner release: After 12 consecutive on-time payments Loan servicer: Sallie Mae
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Other tax breaks to consider

The federal government offers multiple tax breaks that can help make college more affordable. You can learn more about them in IRS Publication 970.

Education tax credits provide dollar-for-dollar reductions in your tax obligation. Tax deductions, like the student loan interest deduction, can lower your tax bill by reducing your taxable income. College savings plans allow you to save, invest, and enjoy tax-free growth, and then withdraw the money tax-free to pay for qualified education expenses.

Student loan interest deduction — If you paid interest on a qualifying student loan, and meet income limits for the deduction, the student loan interest deduction could reduce your taxable income by up to $2,500.
529 plans — Established and run by states, 529 plans allow you to either save for future college expenses or prepay college expenses. The money you invest in a 529 isn’t tax deductible. But you won’t pay tax on the gains, and your withdrawals won’t be taxed as long as you use the money to pay for qualifying education expenses.
Coverdell education savings accounts — You can use a Coverdell account to pay for higher education or certain elementary and high school expenses. You’ll need to meet income limits to be eligible for the account, and you can only contribute $2,000 per year per student. Like 529s, Coverdells aren’t tax deductible, but you won’t pay taxes on the growth or on distributions as long as you use them for qualified education expenses.

Learn More: How to Claim Your Student Loan Interest Deduction

About the author

Evelyn Pimplaskar

Evelyn Pimplaskar is Credible’s editor-in-chief. Her career has spanned nearly every form of writing and editing, from newspaper and magazine articles, to press releases, case studies and online content. She’s covered topics ranging from volatile local elections and tools to dissuade birds from roosting on commercial buildings, to income taxes, student loans, investing, borrowing and saving.

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