How to Use Form 1098-T for Education Tax Credits

To use Form 1098-T for education tax credits, take the qualified tuition payments in Box 1, add any qualifying costs the form doesn’t capture (like required textbooks), subtract the scholarships and grants in Box 5, and carry the net figure to IRS Form 8863 to claim either the American Opportunity Tax Credit (up to $2,500) or the Lifetime Learning Credit (up to $2,000). The 1098-T is a starting point, not a finished calculation. You do the math; the form just supplies the raw numbers.

Read the Boxes That Actually Matter

Most of the numbered boxes on the form are informational. Five of them drive your credit.

Box 1 is the total payments your school received during the calendar year for qualified tuition and enrollment fees, from all sources. It is not reduced by the scholarships in Box 5. Room, board, insurance, transportation, and personal living costs are not in this number and never qualify for the credits.¹

Box 5 is the total scholarships and grants your school administered during the year, including federal, state, and institutional aid. This is the number you subtract from your qualified expenses to find what you actually paid out of pocket.¹

Box 4 shows refunds or reductions in tuition tied to a prior year’s expenses. If there is a number here, you may have to recapture part of a credit you claimed in an earlier year, which increases your taxable income now.¹

Box 7, if checked, tells you some of the Box 1 payments cover an academic period starting in January, February, or March of next year. Common example: you paid spring tuition in December. It doesn’t change your credit; it just flags timing.¹

Boxes 8 and 9 steer which credit you can take. Box 8 is checked if the student was enrolled at least half-time during any academic period in the year, which is a requirement for the AOTC. Box 9 is checked if the student was a graduate student, and graduate students cannot claim the AOTC (they can still claim the LLC).

Add Expenses the Form Doesn’t Show

Box 1 only captures what your school processed. It leaves out course materials you bought elsewhere, and those can still count toward your credit depending on which one you claim.²

For the AOTC, required textbooks and course materials count even if you bought them from Amazon or another third party.³

For the LLC, books and supplies count only if you were required to buy them directly from the school as a condition of enrollment. A textbook ordered online doesn’t qualify unless the school required the purchase through its own system.³

Keep receipts. The 1098-T proves what the school reported. Your receipts prove everything else.⁴

Pick the Right Credit

You can claim only one credit per student per year. Pick wrong and you leave money on the table.

American Opportunity Tax Credit

Up to $2,500 per student per year. The math is 100% of the first $2,000 in qualified expenses plus 25% of the next $2,000. Up to 40% of the credit (a maximum of $1,000) is refundable, meaning it can come back to you even after your tax hits zero.⁵

To qualify, the student must be pursuing a degree or recognized credential, enrolled at least half-time for at least one academic period, and within the first four years of postsecondary education. A student with a federal or state felony drug conviction at the end of the tax year cannot claim it.⁵

Lifetime Learning Credit

Up to $2,000 per tax return (not per student). The math is 20% of up to $10,000 in qualified expenses. It is nonrefundable, so it reduces your tax bill to zero but won’t generate a refund on its own.³

The LLC has no year limit, no degree requirement, and no half-time rule. It covers courses taken to improve job skills at any level of postsecondary education, which makes it the credit for graduate students, professional development, and career changers.³

Undergrad in the first four years, at least half-time, pursuing a degree? Take the AOTC; it’s worth more and part of it can refund. Grad student, part-time, fifth-year senior, or taking a class for job skills? The LLC is your credit.

Run the Numbers and File Form 8863

The calculation is straightforward:

Start with Box 1.
Add any qualifying course materials the form didn’t capture (using the AOTC or LLC rules above).
Subtract Box 5 (scholarships and grants).
The result is your net qualified expenses.

Apply that figure to the credit formula. For the AOTC, $4,000 in net qualified expenses maxes out the $2,500 credit. For the LLC, $10,000 in net qualified expenses maxes out the $2,000 credit.

Both credits are claimed on IRS Form 8863, which you attach to your tax return. You’ll need the 1098-T plus your own records for any expenses the form didn’t include.²

Check the Income Limits

Both credits share the same phase-out. You get the full credit if your modified adjusted gross income is $80,000 or less ($160,000 or less for married filing jointly). The credit shrinks between $80,000 and $90,000 ($160,000 and $180,000 jointly) and disappears above the upper thresholds.⁵

These ranges are not indexed for inflation. The IRS has confirmed they remain unchanged for the 2026 tax year.⁶

One hard stop: if you file as married filing separately, you cannot claim either credit at any income.³

Who Claims It: Parent or Student

If the student can be claimed as a dependent on someone else’s return, only that other person can claim the credit. The student cannot claim it on their own return, even if the student personally paid the tuition.³

The refundable $1,000 piece of the AOTC has its own rule. If the student is under 18, or under 24 and a full-time student whose earned income doesn’t cover at least half their support, that refundable portion may not be available. Most traditional-age dependent undergraduates don’t clear the earned-income threshold, so a parent claiming them typically gets a nonrefundable AOTC. The credit still reduces the parent’s tax dollar-for-dollar up to $2,500; the extra $1,000 refund just doesn’t kick in.

Don’t Double-Dip With Scholarships or a 529

Scholarship money that pays for qualified tuition, fees, and required course materials is tax-free. Any portion that pays for room, board, travel, or other nonqualified costs is taxable income. If Box 5 exceeds your qualified expenses, the excess is generally taxable.⁷

Scholarships that require you to work as a teaching or research assistant are partially taxable to the extent they compensate you for services, regardless of the label.⁷

If you also took a 529 plan distribution during the year, you cannot use the same expenses for both the credit and the tax-free 529 withdrawal. Reduce your qualified expenses first by tax-free scholarships and grants, then by the expenses you used for the education credit. Whatever qualified expenses are left can be covered by the 529 tax-free.⁷

In practice, families often steer $4,000 of expenses toward the AOTC to max the credit, then use the 529 for remaining tuition, fees, room, and board. (Room and board qualify for a 529 distribution even though they don’t count for the tax credits.) Getting the allocation right can be worth hundreds of dollars.

If Your 1098-T Is Missing or Wrong

Schools have to furnish the form by January 31 of the year after the reporting year, so a 2025 statement should arrive by January 31, 2026. If it doesn’t, check your student portal and confirm the address on file with the bursar or financial aid office.

Some students never receive a 1098-T because their situation falls into a reporting exception: courses taken for no academic credit, nonresident alien status without a request, or scholarships that fully covered qualified tuition and fees so there’s no net amount to report. Not receiving the form doesn’t automatically bar you from a credit. If you paid qualifying expenses out of pocket, meet the other rules, and can document what you spent, you can still claim one.⁸²

If the numbers on your form look wrong, ask the school for a corrected statement. Errors in Box 1 or Box 5 happen more often than you’d expect, especially when payments cross calendar years or outside scholarships post late. Don’t file on numbers you know are off.

Either way, your receipts, canceled checks, and account statements are what protect the claim if the IRS asks. The 1098-T is the school’s report. Your records are your proof.⁴

1
Internal Revenue Service. Instructions for Forms 1098-E and 1098-T (2025)
2
Internal Revenue Service. 2025 Instructions for Form 8863 – Education Credits
3
Internal Revenue Service. Education Credits: AOTC and LLC
4
Internal Revenue Service. Education Credits: Questions and Answers
5
Internal Revenue Service. American Opportunity Tax Credit
6
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
7
Internal Revenue Service. Publication 970 (2025), Tax Benefits for Education
8
Internal Revenue Service. 2025 Instructions for Forms 1098-E and 1098-T