What the American Opportunity Tax Credit Covers

The American Opportunity Tax Credit reduces your federal income tax by up to $2,500 per year for each student in your household who is enrolled at least half-time in a degree or certificate program. The credit covers tuition, required fees, and course materials like textbooks — but not room, board, or transportation.

You claim this credit on your tax return for the year the expenses were paid, not the year the student graduates. If you paid tuition in December for spring semester classes, that expense counts on the return you file the following April, not the current year's return.

The credit is available for the first four years of post-secondary education. Once a student has completed four years of undergraduate study, they cannot claim it again, even if they enroll in graduate school or a second bachelor's degree.

Key Takeaways

  • The American Opportunity Tax Credit reduces your tax bill by up to $2,500 per student per year for tuition, fees, and course materials at an accredited school.
  • You must have earned income and file a tax return to claim the credit; the student does not have to file their own return.
  • The credit begins to phase out at $80,000 of modified adjusted gross income for single filers and $160,000 for married couples filing jointly.
  • Up to $1,000 of the credit is refundable, meaning you can receive money back even if you owe no tax, but only if your income is below the phase-out threshold.
  • The student must be enrolled at least half-time in a degree or certificate program at an accredited institution to count toward the credit.

Income Limits and How They Affect Your Credit

Your income determines whether you can claim the full credit, a reduced credit, or no credit at all. The Internal Revenue Service uses a figure called modified adjusted gross income (MAGI) to measure this. For most people, MAGI is the same as adjusted gross income reported on line 11 of Form 1040.

If you file as single, the credit begins to reduce at $80,000 of MAGI and phases out completely at $90,000. If you file as married filing jointly, the phase-out range is $160,000 to $180,000. If your income falls within the phase-out range, you lose $50 of the credit for every $1,000 (or fraction thereof) of income above the lower threshold.

For example, a single filer with $85,000 of MAGI would be $5,000 over the $80,000 threshold. That rounds up to six increments of $1,000, so the credit reduces by $300 (6 × $50), leaving a maximum credit of $2,200 instead of $2,500.

Who Can Claim the Credit and What Counts as may have access to Expenses

You claim the credit if you pay the education expenses and the student is your dependent, spouse, or yourself. The student must be pursuing a degree or certificate at an accredited post-secondary school — this includes four-year universities, community colleges, and vocational programs, but not online-only schools that are not regionally accredited.

may have access to expenses are tuition and required fees charged by the school, plus course materials and books required for enrollment. The school does not have to provide the materials; if the student buys them independently, they still count. Expenses paid with scholarships, grants, or student loans do not count — only out-of-pocket costs reduce the credit.

Expenses that do not count include room and board, transportation, insurance, and personal expenses. If the school bundles these into a single bill, you must separate out the education portion to determine your credit.

The Refundable Portion and When You Get Money Back

The American Opportunity Tax Credit is partially refundable, which means you can receive money even if you owe no federal income tax. Up to $1,000 of the $2,500 maximum credit is refundable; the remaining $1,500 is non-refundable and can only reduce your tax bill to zero.

The refundable portion is calculated as 40 percent of the credit amount, but capped at $1,000. If your credit is $2,500, the refundable portion is $1,000. If your credit is $1,500 due to income phase-out, the refundable portion is $600 (40 percent of $1,500).

To receive the refundable portion, your income must be below the phase-out threshold. If your income falls within the phase-out range, the refundable portion reduces along with the overall credit, and you may receive no refund at all.

How to Claim the Credit on Your Tax Return

You report the American Opportunity Tax Credit on Form 8863, Education Credits, and attach it to your Form 1040. The form asks for the student's name, Social Security number, the school's employer identification number (EIN), and the amount of may have access to expenses paid during the tax year.

You will need the school's EIN, which appears on the Form 1098-T that the school sends if you paid $600 or more in may have access to expenses. If the school does not send a 1098-T, you can find the EIN on the school's website or by calling the financial aid office. The IRS does not require the 1098-T to claim the credit, but having it makes the process simpler.

If you use tax software, the program will walk you through the questions and calculate the credit automatically. If you file by paper, Form 8863 includes a worksheet to determine the phase-out reduction if your income is in the range.

Coordination With Other Education Benefits and Scholarships

If the student receives a scholarship or grant, you must subtract that amount from may have access to expenses before calculating the credit. This prevents you from claiming the same expense twice — once as a credit and once as scholarship income.

You cannot claim both the American Opportunity Tax Credit and the Lifetime Learning Credit for the same student in the same year. You must choose which credit provides the larger benefit. The Lifetime Learning Credit has no limit on the number of years claimed but maxes out at $2,000 per return, making it better for graduate students or those in their fifth year or beyond.

If the student takes out a federal student loan, the loan proceeds do not count as may have access to expenses. However, loan interest paid in a later year may be deductible separately on your return, up to $2,500 per year.

What Happens if the School Is Not Accredited or the Student Drops Out

The school must be accredited by a body recognized by the U.S. Department of Education. Most regional and national accreditors may have access to, but some online schools and for-profit institutions are not accredited and do not count. You can verify a school's accreditation status on the Department of Education's database at ope.ed.gov/dapip.

If the student drops out or withdraws before the end of the term, you can still claim the credit for expenses paid before the withdrawal. However, if the school refunds part of the tuition, you must reduce your claimed expenses by the refund amount. If the refund exceeds the expenses you paid out of pocket, you cannot claim a credit for that year.

If you claimed the credit and later discover the school was not accredited, the IRS may disallow the credit and assess back taxes plus penalties. It is your responsibility to verify accreditation before claiming the credit.

Frequently Asked Questions

Can I claim the credit if my child is a dependent on my return but also files their own tax return?

Yes. The student does not have to file a return to count toward your credit. You claim the credit on your return if you pay the expenses and the student is your dependent. The student cannot also claim the credit on their own return for the same expenses.

What if I pay tuition in December for spring semester classes — which year do I claim the credit?

You claim the credit in the year you paid the expenses, not the year the classes are taken. If you paid in December 2024 for spring 2025 classes, you claim the credit on your 2024 tax return filed in April 2025.

Does the credit explore to graduate school or a second bachelor's degree?

No. The credit is limited to the first four years of post-secondary education. Once a student completes four years of undergraduate study, they cannot claim the American Opportunity Tax Credit again, even if they pursue a graduate degree.

Can I claim the credit if my student received a full scholarship?

Only for expenses not covered by the scholarship. If the scholarship covers tuition and fees but not books, you can claim the credit for the book expenses. You must subtract all scholarship and grant amounts from total may have access to expenses before calculating the credit.

What if my income is above the phase-out range — can I claim any credit at all?

No. Once your MAGI exceeds the upper phase-out threshold ($90,000 for single filers, $180,000 for married filing jointly), you cannot claim the American Opportunity Tax Credit. You may be able to claim the Lifetime Learning Credit instead, which has no income limit.