Federal tax law does not offer a child education tax exemption anymore. The Tax Cuts and Jobs Act of 2017 eliminated the personal exemption for dependents and shifted the benefit into credits that cut your tax bill directly. If you are paying for a child’s schooling, the two provisions that do the heavy lifting are the American Opportunity Tax Credit, worth up to $2,500 per student, and the Lifetime Learning Credit, worth up to $2,000 per return. A student loan interest deduction and tax-free 529 plan distributions round out what the federal code offers.
The American Opportunity Tax Credit
The American Opportunity Tax Credit (AOTC) is the most valuable of the education credits. It covers up to $2,500 per eligible student each year during the first four years of college.1Office of the Law Revision Counsel. 26 USC 25A – American Opportunity and Lifetime Learning Credits The math: 100% of the first $2,000 in qualified expenses, plus 25% of the next $2,000. With two children in college at the same time, you can claim the full credit for each of them.
Forty percent of the AOTC, up to $1,000, is refundable.1Office of the Law Revision Counsel. 26 USC 25A – American Opportunity and Lifetime Learning Credits If the credit zeros out your tax, the IRS pays out the refundable portion as cash. Most other education tax breaks stop the moment your tax hits zero, so this piece matters for lower-income families.
To qualify, the student must be enrolled at least half-time in a degree or certificate program at an accredited school that participates in federal student aid. The student cannot have completed four years of post-secondary education before the tax year began, and cannot have a felony drug conviction.2Internal Revenue Service. Education Credits – AOTC and LLC
Income limits are strict. The credit phases out for single filers with modified adjusted gross income (MAGI) between $80,000 and $90,000, and for joint filers between $160,000 and $180,000.1Office of the Law Revision Counsel. 26 USC 25A – American Opportunity and Lifetime Learning Credits These thresholds are fixed in statute and do not adjust for inflation.
The Lifetime Learning Credit
The Lifetime Learning Credit (LLC) is more flexible but less generous. It equals 20% of up to $10,000 in qualified expenses, for a maximum of $2,000 per tax return, not per student.1Office of the Law Revision Counsel. 26 USC 25A – American Opportunity and Lifetime Learning Credits That per-return cap is the biggest difference from the AOTC when you have more than one student in the family.
The LLC has no cap on how many years you claim it, which makes it the usual choice for graduate school, professional programs, and adult learners taking courses to build job skills. There is no half-time enrollment requirement, so even a single class counts. It is entirely non-refundable.3Internal Revenue Service. Lifetime Learning Credit
Income phase-outs match the AOTC: $80,000 to $90,000 for singles, $160,000 to $180,000 for joint filers.2Internal Revenue Service. Education Credits – AOTC and LLC You cannot claim both credits for the same student in the same year, but you can pair them across siblings, taking the AOTC for one child and the LLC for another.
Claiming Your Child as a Dependent
You generally need to claim the student as a dependent before you can claim the credit on your return. A qualifying child must live with you for more than half the year, must not pay more than half of their own support, and must be under 19 at year-end, or under 24 if enrolled full-time as a student.4Internal Revenue Service. Dependents Time spent living in a dorm or off-campus apartment still counts as living with you.5Office of the Law Revision Counsel. 26 USC 152 – Dependent Defined
One rule catches parents off guard: if you file as married filing separately, you cannot claim either education credit at all.2Internal Revenue Service. Education Credits – AOTC and LLC Run the numbers both ways before locking in a filing status.
Which Expenses Qualify
Qualified expenses are narrower than most parents expect. Tuition, enrollment fees, and required course materials such as textbooks, supplies, and equipment all count. Materials qualify even when purchased from a third-party retailer, as long as the course requires them.6Internal Revenue Service. Qualified Education Expenses
Room and board does not qualify for either credit, no matter how large the bill is or whether the student lives on campus. Insurance, medical fees, transportation, and other personal living costs are also excluded.6Internal Revenue Service. Qualified Education Expenses
How Scholarships Affect the Credit
Scholarship money spent on tuition, fees, and required materials is tax-free as long as the student is pursuing a degree. Any portion used for room and board, travel, or other personal expenses becomes taxable income to the student. Amounts paid for teaching or research duties are also taxable, even when labeled a fellowship.7Internal Revenue Service. Publication 970 (2025), Tax Benefits for Education
There is a planning move worth knowing. If a scholarship covers all tuition, it looks like there are no out-of-pocket expenses left for a credit. You can choose to treat part of that scholarship as taxable income, which frees up the same amount of tuition to claim for the AOTC. If the student sits in a low bracket, a small amount of tax on the scholarship can unlock a much larger credit, especially the refundable portion. Taxable scholarship amounts go on the wages line of Form 1040; if the amount is not on a W-2, write “SCH” next to the line and enter the taxable portion.7Internal Revenue Service. Publication 970 (2025), Tax Benefits for Education
Student Loan Interest Deduction
Whoever is legally repaying a qualified education loan can deduct up to $2,500 in interest per year without itemizing.8Internal Revenue Service. Topic No. 456, Student Loan Interest Deduction This is an above-the-line deduction, so it reduces adjusted gross income directly. The loan must have been taken out solely to pay qualified education expenses, which for this deduction includes tuition, room and board, books, and transportation. That definition is broader than what the AOTC and LLC accept.
For 2026, the deduction phases out for single filers between $85,000 and $100,000 MAGI, and for joint filers between $175,000 and $205,000.9Internal Revenue Service. Revenue Procedure 2025-32 Loans from family members or employer plans do not qualify. A graduate who is no longer a dependent can claim the deduction on their own return.
Coordinating a 529 Plan With the Credits
A 529 college savings plan holds after-tax money that grows tax-free and comes out tax-free when spent on qualified education expenses. For college, that list includes tuition, fees, books, supplies, equipment, room and board, and computers. For K-12, 529 distributions can cover up to $10,000 per year in tuition at private, public, or religious schools.10Internal Revenue Service. 529 Plans: Questions and Answers
The key rule: the same dollar of expense cannot be used for both a tax-free 529 distribution and an education credit.7Internal Revenue Service. Publication 970 (2025), Tax Benefits for Education Families who overlook this either owe tax on part of the 529 withdrawal or lose part of the credit. Allocate deliberately. Use 529 money for room and board first, because those costs never qualify for the credits anyway. Then apply out-of-pocket spending to tuition and fees to support the AOTC or LLC claim.
Many states add their own income tax deduction or credit for 529 contributions on top of the federal treatment. The amounts and rules vary by state.
Filing the Claim
Claim either credit on Form 8863, attached to your Form 1040.11Internal Revenue Service. About Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits) The key input document is Form 1098-T (Tuition Statement), which the school files and sends to you.12Internal Revenue Service. About Form 1098-T, Tuition Statement Most schools post it electronically through a student portal by the end of January.
Box 1 of the 1098-T shows total payments received for qualified tuition and related expenses. Cross-check that number against your own records, since schools sometimes report figures that do not match what you actually paid, especially where scholarships, refunds, or mid-year enrollment changes are involved. You also need the school’s Employer Identification Number from the 1098-T for Form 8863.
Keep receipts for course materials bought outside the school, along with your 1098-T and proof of payment. Federal tax records should be kept for at least three years from the filing date, which is the standard IRS examination window.13Internal Revenue Service. Topic No. 305, Recordkeeping
If You Get a Tuition Refund Later
If you claim a credit and then receive a tuition refund or an additional tax-free scholarship covering the same expenses, part of the credit may need to be paid back. This is credit recapture. You recalculate qualified expenses by subtracting the refund, refigure the credit you would have qualified for, and report the difference as extra tax on the return for the year you received the refund.7Internal Revenue Service. Publication 970 (2025), Tax Benefits for Education
The same logic applies when a student drops a course after the add/drop deadline and the school issues a partial refund, or when an employer reimburses tuition you already claimed. The Form 8863 instructions cover the timing scenarios depending on when the refund arrives relative to your filing date.14Internal Revenue Service. Instructions for Form 8863 The IRS can match amended 1098-T figures against prior returns, so a recapture that goes unreported can surface later.