Understanding How Education Credits Can Reduce Your Taxes or Increase Your Refund
Many students and professionals in the U.S. invest heavily in college, university, online courses, and career-boosting training programs. Yet many taxpayers are unaware of a valuable IRS benefit: the Education Credit.
This credit can lower your tax bill or even increase your refund—making education more affordable.
For the 2025 tax year, the IRS offers two major education credits:
1. American Opportunity Tax Credit (AOTC)
Best for: Undergraduate students (first 4 years)
Maximum benefit: Up to $2,500 per student
The AOTC is designed specifically for students pursuing their first four years of higher education.
How the AOTC is calculated
- 100% of the first $2,000 of qualified education expenses
- 25% of the next $2,000
Refundable portion
A key advantage of the AOTC is that up to $1,000 is refundable.
This means even if your total tax liability is zero, you may still receive a refund.
Common expenses that qualify
- Tuition
- Mandatory enrollment fees
- Course materials required for study
2. Lifetime Learning Credit (LLC)
Best for: Graduate students, online learners, skill development & professional certifications
Maximum benefit: Up to $2,000 per return
The LLC offers broader eligibility compared to AOTC. You can claim this credit for:
- Master’s programs
- Part-time or continuing education
- Skill-building or vocational courses
- Professional certifications
- Online university programs
Key point
The LLC is non-refundable, meaning you only benefit if you owe taxes.
How the LLC works
- Covers 20% of up to $10,000 of eligible expenses
➡ Maximum credit: $2,000 per return
Who benefits the most?
- Adults upgrading skills
- Working professionals switching careers
- Individuals enrolled in flexible online programs
Form 1098-T: Your Key to Claiming Education Credits
Your school or institution will issue Form 1098-T, which reports:
- Tuition paid
- Scholarships or grants received
- Eligibility confirmation for credits
Always double-check this form when filing your tax return—it determines whether you can legally claim AOTC or LLC.
Education Credits at a Glance (Quick Comparison)
| Feature | AOTC | LLC |
|---|---|---|
| Eligible students | First 4 years of undergrad | Any level, any course |
| Max annual credit | $2,500 | $2,000 |
| Refundable? | Yes (up to $1,000) | No |
| Enrollment requirement | Must be at least half-time | No minimum |
| Annual claim limit | Per student | Per tax return |
Common Questions
1. Can you claim both AOTC and LLC in the same year?
Yes—but not for the same student. You can claim AOTC for one student and LLC for another.
2. Are international or online students eligible?
If the school is an eligible U.S. institution (has a federal school code), online and international students may qualify.
3. Do course materials count as qualified expenses?
For AOTC, yes, even if purchased outside the school.
For LLC, only if required for enrollment.
Keywords: Education Credit 2025, American Opportunity Tax Credit, Lifetime Learning Credit eligibility, Form 1098-T explained, Education tax benefits USA, How to claim AOTC and LLC, Tax credits for college students, IRS education incentives, Refundable vs non-refundable tax credits, U.S. tax tips for students