AOTC vs Lifetime Learning Credit: choosing the right education credit

College bills come with two federal tax credits attached, and families often claim the wrong one, or neither. The American Opportunity Tax Credit (AOTC) is the bigger one, built for the first years of a degree. The Lifetime Learning Credit (LLC) is smaller and much broader: graduate school, a single course to sharpen job skills, a fifth year of college. This page covers who qualifies for each, what each is worth, the income limits, and an example.

The two credits side by side

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The rule that ties them together: you can claim only one credit per student in a year, and never both for the same expenses. A family can claim the AOTC for one child and the LLC for another (or for a parent's own course) on the same return. ¹

Who can claim them

The student can be you, your spouse if you file jointly, or a dependent you claim. Whoever claims the student as a dependent claims the credit, even if the student or a grandparent paid the bill: expenses a third party pays for a student you claim are treated as paid by you. ¹

You can't claim either credit if someone else can claim you as a dependent, if you file married filing separately, or if your income is above the limit. ¹

Starting with 2026 returns, there's a new identification rule: you (and your spouse, on a joint return) and the student, if your dependent, need a Social Security number valid for work, issued by the return's due date, including extensions. ¹

The income limit

Both credits use the same phase-out, based on modified adjusted gross income (MAGI). The credit starts shrinking above $80,000 of MAGI ($160,000 on a joint return) and is gone at $90,000 ($180,000 joint). ^{2 1} These figures are fixed in the statute and aren't adjusted for inflation, so more families cross them each year.

For most people MAGI is simply adjusted gross income; it adds back certain foreign income that was excluded. ²

What counts as qualified expenses

Tuition and required enrollment fees count for both credits. Room and board, insurance, transportation and personal expenses don't, even when the school bills them. ³

Two details catch people out:

• Scholarships and grants come off first. Tax-free scholarships, Pell grants and employer education assistance reduce the expenses you can use. ³
• No double dipping with a 529 plan. Expenses paid with a tax-free 529 distribution can't also be used for a credit. Families often pay a slice of tuition from savings or cash to keep the AOTC's full expense amount available. See 529 plans.

Form 1098-T and Form 8863

Schools send Form 1098-T by the end of January. The law generally requires the student to have received one to claim a credit, but the amount in Box 1 may not match what you actually paid in the year, so work from your own payment records. ¹ If the form never arrived, ask the school and keep a record that you asked. ¹

You claim either credit on Form 8863, attached to Form 1040. The AOTC needs the school's employer identification number on Form 8863. ¹

Keep the receipts. If the IRS audits the credit and you can't show you qualified, you repay it with interest and may face a penalty, and the IRS can bar you from claiming the AOTC for years after a wrong claim. ¹

What to gather

• Form 1098-T for each student.
• Your own record of tuition and fee payments, with dates (expenses for a term beginning in the first months of next year can count if paid this year).
• Records of scholarships, grants and employer assistance.
• Receipts for required books and course materials.
• Any 529 plan distribution statements (Form 1099-Q) for the year.