The American Opportunity Tax Credit (AOTC) is the largest federal credit for college costs, and it is partly refundable, so it can pay out even when you owe no tax. The rules decide who gets it: which student, which expenses and what income.
This guide explains the amounts, the student and income tests, how it differs from the Lifetime Learning Credit, and how to claim it, with a worked example. It follows IRS Publication 970, the Form 8863 instructions and the IRS education credits page.
The credit is figured per student. Per the IRS, it is 100% of the first $2,000 of qualified education expenses, plus 25% of the next $2,000, for a maximum of $2,500. Expenses above $4,000 do not increase it.
| Qualified expenses paid for one student | Credit before the income phase-out | Largest refundable part (40%, capped at $1,000) |
|---|---|---|
| $1,000 | $1,000 | $400 |
| $2,000 | $2,000 | $800 |
| $3,000 | $2,250 | $900 |
| $4,000 | $2,500 | $1,000 |
| $6,000 | $2,500 | $1,000 |
Forty percent of the credit may be refundable, which means that if the refundable part is more than your tax, the excess is refunded to you. Because the most the credit can be is $2,500, the refundable part is at most $1,000 per student (40% of $2,500). The rest of the credit is nonrefundable and can only reduce the tax you owe. There is an exception: if you were under age 24 at the end of the tax year and meet the conditions in Pub. 970 (which involve your age, whether your earned income was less than half your support, whether a parent was alive at the end of the year, and your filing status), you cannot claim any part of the credit as a refund.
Generally you can claim the credit if you pay qualified education expenses of higher education for an eligible student, and the student is yourself, your spouse, or a dependent you claim on your tax return. Expenses paid by a dependent you claim, or by a third party for that dependent, are treated as paid by you.
The IRS lists these tests for the student for the 2025 tax year (the same rules are written into the law each year):
You cannot claim the credit if your filing status is married filing separately, if you are claimed as a dependent on someone else's return (such as a parent's), or if your modified adjusted gross income (MAGI) is at or above the limit in the next section.
| Filing status | Full credit (subject to the other tests) | Credit gradually reduced | No credit |
|---|---|---|---|
| Single, head of household, qualifying surviving spouse | MAGI under $80,000 | $80,000 to $90,000 | $90,000 or more |
| Married filing jointly | MAGI under $160,000 | $160,000 to $180,000 | $180,000 or more |
| Married filing separately | Not eligible | Not eligible | Not eligible |
For most people, MAGI is the adjusted gross income on the federal return. If you are in the phase-out range the credit shrinks as income rises, so use the Form 8863 worksheet or tax software rather than estimating. These are the figures in the IRS publication for 2025 returns; The IRS draft instructions for the 2026 Form 8863 (not final) list the same limits, but check the final 2026 Publication 970 and Form 8863 instructions when they appear.
Publication 970 says that beginning in 2026, anyone claiming the AOTC or the Lifetime Learning Credit must have a Social Security number (SSN) that is valid for work and was issued before the due date of the return. If you are not the student, the student also needs a valid SSN to qualify for the credit. The draft 2026 Form 8863 instructions add that on a joint return only one spouse must have a valid SSN. This applies to the return for 2026 (filed in 2027), not to a 2025 return.
Qualified expenses are tuition, required enrollment fees, and course materials that the student needs for a course of study, whether or not the materials are bought at the school. Use only the amounts you paid or are treated as having paid during the year. The amount in box 1 of Form 1098-T can differ from what you paid, and the form also reports scholarships and grants.
The law generally requires a taxpayer (or a dependent) to have received Form 1098-T from an eligible educational institution. In most cases the school sends it by early February. There are exceptions if the school is not required to furnish one. You must also give the school's employer identification number (EIN) on Form 8863. See our Form 1098-T guide for how to read the form.
| American Opportunity Tax Credit | Lifetime Learning Credit | |
|---|---|---|
| Maximum | $2,500 per eligible student | $2,000 per return |
| Refundable? | Partly (40%, up to $1,000) | No (non-refundable) |
| Years available | 4 tax years per student | Available for an unlimited number of tax years |
| Income limit (single) | $90,000 | $90,000 |
| Counts expenses | First $4,000 per student | 20% of the first $10,000 for all students |
You can claim only one of the credits per qualifying student in a year. You can claim both on the same return only if they are for different students, for example the AOTC for one child and the Lifetime Learning Credit for another. If you claim the AOTC for a student, you can choose between using that student's expenses for the AOTC or the Lifetime Learning Credit, and where you have the choice the IRS says the AOTC will always be greater.
A married couple filing jointly with MAGI of $150,000 claim their daughter, a full-time undergraduate in her second year. They paid $4,500 in tuition and fees plus $700 for required course materials, $5,200 in total. Only the first $4,000 counts.
| Step | Amount |
|---|---|
| Qualified expenses counted (capped at $4,000) | $4,000 |
| 100% of the first $2,000 | $2,000 |
| 25% of the next $2,000 | $500 |
| Total credit | $2,500 |
| Refundable part (40%, within the $1,000 cap) | $1,000 |
| Nonrefundable part (reduces tax owed) | $1,500 |
Their MAGI is below the $160,000 joint phase-out start, so the credit is not reduced. This is an illustration; your own result depends on your tax and the other tests.
Complete Form 8863 and attach it to your return, using the information from Form 1098-T. If your American opportunity credit was ever denied or reduced for a reason other than a math or clerical error, the IRS requires Form 8862 with your next return that claims it. Keep records of what you paid, because you must be able to substantiate the payment of qualified expenses.
IRS: Education credits (AOTC and LLC), IRS Publication 970 (2025), Instructions for Form 8863 (2025).