Good news: if you’re struggling to cover the costs of tuition, books, and necessary school supplies, you might be eligible for tax relief help. The United States federal government helps students offset the costs of postsecondary education through IRS tax credits using Form 8863. Keep reading to see whether you qualify for Form 8863 education credits; if you do, we’ll show you how to file the IRS document—and enlighten you to just how much you can save this tax season.

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What is Form 8863?

Tax Form 8863 is a two-page IRS document used to claim education credits. The education credits are designed to offset

updated for current information

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Tax Form 8863 American Opportunity Credit (AOTC)

What is the American Opportunity Tax Credit?

AOTC is a federal tax credit that covers qualified education expenses paid for an   during their first four years of higher education. Part of the AOTC credit is refundable, meaning that you could get a tax refund if Form 8863 lowers your tax bill to zero, up to $1,000.

How much is AOTC worth?

The amount of the AOTC is determined by Form 8863, and is calculated (as of 2019)  at 100 percent of the first $2,000 of qualified expenses you paid for each eligible student and 25 percent of the next $2,000 of qualified expenses paid for that student.

To receive the full AOTC credit with Form 8863, your modified adjusted gross income (MAGI) must be $80,000 or less ($160,000 or less for those married filing jointly). If your MAGI is over $90,000 (or $180,000 for joint filers), you are not eligible for IRS Form 8863, although you can receive a reduced amount if your MAGI is between $80,000 and $90,000 ($160,000-$180,000).

Tax Form 8863 Lifetime Learning Credit (LLC)

Although the LLC is non-refundable like the AOTC, there is no limit to how many years it can be claimed. LLC is available for all years of postsecondary education and for courses to acquire or improve job skills. This means that the LLC is less restrictive than the AOTC, since the student doesn’t need to pursue a degree or other recognized education credential.

What is the Lifetime Learning Credit?

The LLC is a great way to offset tuition and fees required for enrollment or attendance (including amounts required to be paid to the institution for course-related books, supplies, and equipment), however it can only be claimed once per return—not per student.

How much is LLC worth?

As of 2019, you can use tax Form 8863 to claim up to a $2,000 credit per return.

To claim the full LLC, your MAGI must be $68,000 or less ($136,000 or less if you are married filing jointly). If your MAGI is over either of these two numbers, you cannot claim the LLC on Form 8863, although you can receive a reduced credit amount for MAGIs between $58,000 and $68,000 ($116,000-$136,000 if you’re filing jointly).

Tax Form 8863 Education Credits

Something to keep in mind when filing IRS Form 8863: you can claim both on the same return, but only one per student.  If you choose to claim the AOTC on your tax return using Form 8863, you cannot also claim the LLC for the same student in the same year. If you have multiple dependents enrolled in higher education, you can choose which credit to claim on a per-student, per-year basis. For example, you can claim the AOTC for one student and the LLC for another in the same year.

It’s important to note that Form 8863 awards you a tax credit, not a deduction. Here’s the difference: tax deductions lower your overall taxable income, credits subtracted directly from what you owe. This means that Form 8863 can get you greater dollar-for-dollar savings than you might see elsewhere.  To learn more, read our post about tax credits vs. tax deductions.

Not sure if you qualify for Form 8863 education credits? Let’s take a look.

Who Qualifies for Tax Form 8863 Education Credits?

According to the IRS Form 8863, in order to be eligible for the AOTC the student must:

  • Be pursuing a degree or other recognized education credential
  • Be enrolled at least half time for at least one academic period at the beginning of the tax year (the IRS defines an “academic period” as semesters, trimesters, quarters, or any other period of study determined the school, such as a summer school session)
  • Not have finished the first four years of higher education at the beginning of a tax year, and not have claimed the AOTC or the former Hope credit for more than four tax years
  • Not have a felony drug conviction at the end of the year

It’s slightly easier to qualify for and claim the LLC using Form 8863, which is the less restrictive education credit. In order to be eligible for the LLC, you must meet the following conditions:

  • Be enrolled or taking courses at an eligible educational institution
  • Be taking higher education courses to get a degree, recognized education credential, or job skills
  • Be enrolled for at least one academic period beginning in the tax year

How to Calculate MAGI

To qualify for either AOTC or LLC, your modified adjusted gross income (MAGI) must fall within the income requirements. Here’s how to calculate your MAGI:

  • Find your adjusted gross income on IRS Form 1040
  • Add back any deductions you took for IRA contributions, student loan interest, or tuition
  • Add half of your self-employment tax
  • Add your passive income or loss
  • Add excluded foreign income
  • Add any rental losses
  • Add interest from EE savings bonds
  • Add employer-paid adoption expenses
  • Add losses from a publicly traded partnership

Eligible Educational Institution Defined

According to the IRS website, an eligible educational institution is any school offering higher education beyond the high school level. Examples of eligible educational institutions include:

  • Colleges
  • Universities
  • Trade schools
  • Post-secondary institutions that are eligible for student aid from the U.S. Department of Education

Which expenses aren’t covered by AOTC and LLC?

  • Transportation
  • Room and board
  • Insurance
  • Medical expenses
  • Student fees unless they are required for enrollment or attendance
  • Same expenses paid with tax-free educational assistance
  • Same expenses used for any other tax deduction, credit or educational benefit

IRS Form 8863 Instructions

To claim either the AOTC or LLC education credit using tax Form 8863, you’ll need your Form 1098-T Tuition Statement on hand. This document is usually provided by the school and shows the amount billed or received for the given year.

Be mindful that the amount displayed on the Form 1098-T might not be the same number that you claim on your Form 8863. Be sure to read through the Form 8863 qualified expenses, such as room and board, to determine the amount of credit you can claim.

Follow the Form 8863 instructions line by line, taking note of certain speculations as seen on lines 4 and 7. Attach the tax Form 8863 to your Form 1040 or equivalent, and remember to complete a separate Part III on page 2 for each student.

Tips for IRS Form 8863

Be careful when claiming an education credit on Form 8863. If the IRS audits your return and deems your claim incorrect, or you don’t have the necessary documents that show you qualify, you may be required to return the education credit, plus interest.

If you’re unsure of how to file taxes as a student, trust the team at Community Tax. We’ll see whether or not you qualify for Form 8863 education credits, and we’ll check for any other credits, deductions, and write-offs you might be eligible for while we’re at it. If you’re looking to get the most out of your tax return this year and want to save more than you thought possible, Community Tax filing services is the trusted way to go.