Education tax credits 2025 and Form 1098-T

The American Opportunity Credit

It is for the first four years of college. It is figured per student: 100% of the first $2,000 of qualified education expenses, plus 25% of the next $2,000. The most it can be is $2,500 for each eligible student.

40% of the credit is refundable: you can receive that part as a refund even if you owe no tax. The rest can only lower the tax you owe, not below zero.

• The student had not finished the first four years of college before 2025.
• The credit has not been claimed for that student in four earlier years.
• The student was enrolled at least half-time in a program leading to a degree or other recognized credential.
• The student has no felony drug conviction at the end of the year.

The Lifetime Learning Credit

It works for any year of study, including graduate school and courses to improve your job skills, and it does not require half-time enrollment. It is 20% of up to $10,000 of qualified expenses, so it is worth up to $2,000. That limit is per return, not per student: the expenses of every student are added together.

This credit is not refundable: it can lower your tax to zero, but anything left over is not paid back to you. You cannot claim both credits for the same student in the same year, but you can use one for one student and the other for another.

Income limits and who cannot claim them

Both credits start to shrink once your modified adjusted gross income goes past $80,000, or $160,000 if you file jointly. They shrink little by little over the next $10,000 ($20,000 if you file jointly) until they are gone.

If you file as married filing separately, you cannot claim either credit. Generally, the credit is claimed by whoever claims the student as a dependent on their return.

What Form 1098-T is

Your college or school sends you Form 1098-T early in the year. It shows the tuition and qualified expenses paid, and any scholarships or grants received, which reduce the expenses you can use for the credit. Generally, the student must have received a 1098-T to claim the credit.

For the American Opportunity Credit, books and materials the course requires also count, even if they are not on the 1098-T. Keep your receipts.

How Vordana Tax handles it

With Vordana Tax you copy the figures from your 1098-T and answer simple questions about each student. The program applies the form's questions, moves a student to the Lifetime Learning Credit when they do not qualify for the American Opportunity Credit, applies the income limit and prepares Form 8863 with your Form 1040, which is e-filed to the IRS.

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