How Tuition Tax Credits Work

The American Opportunity Tax Credit

The American Opportunity Tax Credit, on the other hand, offers up to $2,500 in tax savings for students enrolled at a school that's eligible to participate in the federal student loan program. It's available for a total of four years and can be claimed by either the student or someone who lists the student as a dependent [source: IRS].

The credit is more limited than the LLC in terms of the types of education covered. A student must be pursuing a degree or other recognized credential in order to be eligible. He or she must also have enrolled at least part-time during one academic period in the tax year. The student also can't have completed four years of higher education at the time, nor already claimed the AOTC in each of the preceding four years. Students who have been convicted or plead guilty to a felony drug charge are not eligible for the credit [source: IRS].

The AOTC covers 100 percent of the student's first $2,000 in tuition, expenses and supplies, and 25 percent of the next $2,000. The modified adjusted gross income limit for single filers is $80,000 and $160,000 for joint filers. Those who make between $80,000 and $90,000 ($180,000 for joint filers) can get a portion of the credit at a reduced rate [source: IRS].

There's one other big difference between the LLC and AOTC that students and other filers should be aware of. The AOTC is partially refundable. If you don't owe the government money at the end of the year, you can get up to $1,000 in cold hard cash back from Uncle Sam for claiming the AOTC [sources: IRS, IRS].

Related Articles


  • Internal Revenue Service. "American Opportunity Credit." 2013. (Oct. 16, 2014)
  • Internal Revenue Service. "Lifetime Learning Credit." 2013 (Oct. 16, 2014)
  • Investopedia. "Internal Revenue Service – IRS." (Oct. 26, 2014)
  • TurboTax. "Take Advantage of Two Education Tax Credits." 2013 (Oct. 16, 2014)