College students may incur large expenses because of the cost of tuition and enrollment fees. The Internal Revenue Service offers a tax break for some college students to help offset these expenses. During the first four years of college education, students may take up to $2,500 in credits for qualified educational expenses. If a student is not enrolled in a degree program or otherwise doesn't qualify for this credit, the IRS offers another credit, the Lifetime Learning Credit, to help offset the student's educational expenses.
American Opportunity Credit
Enroll in an undergraduate program in the United States that leads to a college degree. Take enough classes to be considered half-time or full-time for the tax year.
Obtain Form 8863 from the IRS's website or call the IRS to request a copy of the form.
Complete Part I of Form 8863. Place your name and Social Security number in the appropriate section of the form. Calculate your qualified expenses on Worksheet I. If you have more than $4,000 in educational expenses, claim $4,000 as your qualified expenses.
Skip down to Part III. If you are over the age of 24, provide over half of your own support or are filing a joint tax return, do the calculations in Part III to determine your refundable credit. If you do not qualify for the refundable credit because you are under the age of 24 and not providing at least half of your own support, check the box next to Line 13 and skip to Line 15.
Put the amount from Line 15 on Line 6 of the Credit Limit Worksheet, which is included with the instructions for Form 8863. Do the calculations on the Credit Limit Worksheet and put the final calculation on Line 23 of Form 8863.
Put the amount from Line 23 on Form 1040, Line 31. Attach Form 8863 to your tax return.
Lifetime Learning Credit
Enroll in at least one college course.
Obtain Form 8863 from the IRS's website or call the IRS to request a form be mailed to you.
Provide your name and Social Security number on Line 1 of Part II of the form. Use the Qualified Expenses Worksheet for Part II to figure out your qualified expenses. Put the qualified expenses on Line 1, Column C of Part II of Form 8863.
Put your qualified educational expenses on Part IV, Line 16 of Form 8863. Do the calculations on Lines 17 through 22. Put your Line 22 amount on Line 1 of the Credit Limit Worksheet included with the instructions for Form 8863. Calculate your credit using this worksheet and place the total credit on Line 23 of Form 8863.
Enter your Line 23 amount on Form 1040, Line 49. Attach Form 8863 to Form 1040.
You can only claim the American Opportunity Tax Credit for the first four years of college education. You also cannot claim both the American Opportunity Tax Credit and Lifetime Learning Credit for the same year.