How the American Opportunity Tax Credit Works

Which Credit is Best for You?

The American Opportunity Tax Credit and the Lifetime Learning Credit are designed to help ease the burden of tuition and related expenses for students and their families. The trouble is, you can't claim both credits in the same year. To decide which one is best for you, take a look at the some of the ins and outs of each credit.

In taxes, as in life, size matters. The maximum AOTC ($2,500) is bigger than the maximum LLC ($2,000). The LLC is calculated based on 20 percent of up to $10,000 in tuition and other costs source: IRS].

The LLC may still be attractive to tax filers who have used up four consecutive AOTCs or who are enrolled in programs not covered by the AOTC. The LLC applies to a wide range of learners seeking to improve their education or job prospects. Students need not be pursuing a degree in order to take advantage of the LLC and don't need to be going to school at least part time. Instead, LLC filers only have to show that the course for which they're seeking the credit is offered by an approved institution and is either counting toward a degree or useful in developing job-related skills [sources: IRS, IRS].

Meanwhile, the AOTC is available to tax filers with higher incomes than those eligible for the LLC. A person who makes $52,000 or less ($104,000 for joint followers) is eligible for the full amount of the LLC. Those who make more than $52,000 and less than $62,000 ($124,000 for joint filers) can get a reduced credit [source: IRS].

Oh, and there's one other important difference between the AOTC and LLC: The AOTC is partially refundable. If the government owes you cash at the end of the year, you can add up to $1,000 worth of money to the tab.

Last editorial update on Jan 8, 2019 12:11:43 pm.

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  • Florida State University. "Life Goes to a Course in Circus." (Oct. 26, 2014)
  • Internal Revenue Service. "American Opportunity Tax Credit." March 28, 2014 (Oct. 13, 2014)
  • Internal Revenue Service. "American Opportunity Tax Credit Background." Aug. 4, 2014 (Oct. 13, 2014)
  • Internal Revenue Service. "EITC & Other Refundable Credits." Aug. 29, 2014 (Oct. 13, 2014)
  • Internal Revenue Service. "Lifetime Learning Credit." March 28, 2014 (Oct. 12, 2014)
  • Williams, Roberton. "Income Tax Issues: What is the difference between tax deductions and tax credits?" Tax Policy Center. Sept. 26, 2011 (Oct. 26, 2014)