IRS Form 8863: Eligibility, Qualified Expenses, and Filing Steps

IRS Form 8863 is the form you attach to Form 1040 or 1040-SR to claim a federal education tax credit. It covers two credits: the American Opportunity Tax Credit, worth up to $2,500 per eligible student, and the Lifetime Learning Credit, worth up to $2,000 per tax return.¹ You can only claim one of the two credits per student per year, and the rules for who qualifies, what expenses count, and how much comes back are different for each.

Who Can File Form 8863

You file Form 8863 if you paid qualified education expenses during the tax year for yourself, your spouse (on a joint return), or a dependent you claim. The student has to be enrolled at an eligible educational institution, which generally means an accredited college, university, or vocational school that participates in a federal student aid program run by the Department of Education.²

Only one taxpayer can claim the credit for a given student. If a parent claims a college-age child as a dependent, the child cannot also claim the credit on their own return. Families lose money every year to this overlap.

One rule has no workaround: if your filing status is married filing separately, you cannot claim either credit.³ Married couples who want an education credit have to file jointly.

Choosing Between the AOTC and the Lifetime Learning Credit

The American Opportunity Tax Credit is the more valuable of the two, and it’s the one to reach for first if the student qualifies. It equals 100 percent of the first $2,000 in qualified expenses plus 25 percent of the next $2,000, for a maximum of $2,500 per student.⁴ Forty percent of the AOTC is refundable, up to $1,000, meaning you get that portion back even if you owe no tax.⁵

The AOTC comes with strict eligibility rules. All of the following have to be true for the student:

They had not completed the first four years of post-secondary education at the start of the tax year.
The AOTC has not already been claimed for that student in four earlier tax years. Four years is the lifetime cap; they don’t have to be consecutive.
They were pursuing a degree or other recognized credential.
They were enrolled at least half-time for at least one academic period beginning in the tax year. The academic period can be a semester, trimester, quarter, or summer session, as defined by the school.²
They had no federal or state felony conviction for possessing or distributing a controlled substance as of the end of the tax year.

The Lifetime Learning Credit is smaller but more forgiving. It equals 20 percent of up to $10,000 in qualified expenses, for a maximum of $2,000. That $2,000 cap is per return, not per student, so a household with three students in school still tops out at $2,000 combined.⁴ The LLC is entirely nonrefundable: it can zero out your tax bill but won’t generate a refund on its own.¹

What the LLC gives up in dollars it makes up in flexibility. There’s no year limit, no degree requirement, no half-time enrollment threshold, and the felony drug rule doesn’t apply. A single course taken to build job skills counts. That makes the LLC the natural fit for graduate students, part-time learners, anyone who already used four years of AOTC, and older adults returning for a class or two.⁶

You can claim the AOTC for one student and the LLC for another on the same return, but never both credits for the same student in the same year.⁷

What Counts as a Qualified Expense

Tuition and fees required for enrollment count under both credits. Books, supplies, and equipment are where the two credits diverge, and this catches people out.

For the AOTC, course materials count even if you bought them from an off-campus retailer. A required textbook from Amazon, a laptop needed for coursework, lab supplies from a third-party seller: all eligible.⁸

For the LLC, books, supplies, and equipment count only if the school requires you to pay for them directly to the institution as a condition of enrollment.⁸ The same textbook that qualifies for the AOTC generally will not qualify for the LLC if you bought it outside the school.

Neither credit covers room and board, insurance, medical expenses, transportation, or other personal living costs. Before you calculate the credit, subtract any tax-free assistance from your total expenses. That includes scholarships, Pell Grants, employer-provided educational assistance, and veterans’ educational benefits. Only what you actually paid out of pocket or with loans goes into the calculation.

Income Limits

Both credits phase out at the same income thresholds based on modified adjusted gross income. Full credit is available when MAGI is $80,000 or less for single filers, or $160,000 or less filing jointly. The credit phases down between $80,000 and $90,000 (single) and between $160,000 and $180,000 (joint), then disappears above those ceilings.⁹

For most filers, MAGI equals the AGI on line 11 of Form 1040. Add-backs apply only if you claimed a foreign earned income exclusion, a foreign housing deduction, or excluded income as a resident of a U.S. territory.¹⁰

Documents You’ll Need

The core document is Form 1098-T, the Tuition Statement. The school is required to send it to you by January 31. It reports payments the institution received for qualified tuition and fees, and it includes the school’s employer identification number, which you have to enter on Form 8863.⁵

Form 1098-T only shows what flowed through the school. If you’re claiming the AOTC and paid for required books or a required laptop elsewhere, those purchases won’t be on the 1098-T. Keep your own receipts to capture them.

You can sometimes claim a credit without receiving a 1098-T. Schools aren’t required to issue one when the student is a qualified nonresident alien, when scholarships covered all tuition, when expenses were paid under a formal billing arrangement, or when the courses don’t award academic credit. In those cases, hold on to your own records of enrollment and payment.⁶

How to Fill Out Form 8863

Tax software will generate Form 8863 automatically once you enter education expenses. If you’re filling it out yourself, download the current form from the IRS website.¹ The form has three parts, and you work them in reverse.

Part III is where you start. You complete one Part III for each student, entering their name and Social Security number, the school’s name and EIN from the 1098-T, and the adjusted qualified education expenses. Adjusted means total qualified expenses paid, minus tax-free scholarships and other assistance.

Part I calculates the refundable portion of the AOTC. After computing the total AOTC, you multiply by 40 percent to get the refundable amount, which flows to your Form 1040 and can produce a refund even if you owe no tax.⁵

Part II handles the nonrefundable portion: the remaining 60 percent of the AOTC plus any Lifetime Learning Credit. A Credit Limit Worksheet in the instructions makes sure you don’t claim more nonrefundable credit than your tax liability.¹¹

529 Plans and Other Benefits

You can’t use the same dollar of tuition for both a 529 plan distribution and an education credit. The 529 money was already tax-free, so using those dollars to claim a credit would be double-dipping. A common approach is to pay at least $4,000 of qualified expenses out of pocket or with loans, which fully funds the AOTC calculation, and cover the rest from 529 funds. Misallocating can make part of the 529 distribution taxable.

After You File

Attach Form 8863 to your Form 1040 or 1040-SR. The nonrefundable portion of your credit reduces the tax you owe; if you claimed the AOTC, the refundable portion (up to $1,000) is paid out with your refund.¹

Errors on this form carry consequences beyond losing the credit. If the IRS finds you claimed an education credit through reckless or intentional disregard of the rules, you face a two-year ban on claiming it again. A finding of fraud extends the ban to ten years. Either way, you have to file Form 8862 with a later return before the IRS will let you claim the credit again.¹² The AOTC draws more scrutiny than the LLC because the refundable piece means the IRS is sending money out the door.

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Internal Revenue Service. About Form 8863, Education Credits
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Internal Revenue Service. Education Credits – AOTC and LLC
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Internal Revenue Service. Education Credits
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Office of the Law Revision Counsel. 26 USC 25A – American Opportunity and Lifetime Learning Credits
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Internal Revenue Service. Form 8863 – Education Credits
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Internal Revenue Service. Lifetime Learning Credit
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Internal Revenue Service. Compare Education Credits
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Internal Revenue Service. Qualified Education Expenses
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Internal Revenue Service. American Opportunity Tax Credit
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Internal Revenue Service. Modified Adjusted Gross Income
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Internal Revenue Service. Instructions for Form 8863
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Internal Revenue Service. What To Do if We Deny Your Claim for a Credit