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Accounting and Tax Tips Blog

form 8863 educational tax credit

If you pay for continued education for yourself, your spouse, or a dependent, you may be able to claim the expenses on your taxes and take advantage of the education tax credits available to you.  You can use Form 8863 to report these expenses on your year-end taxes. However, you should take a few things into consideration before you take the deduction.  

What is Form 8863?

Use Form 8863 to claim education expenses from a qualified post-secondary educational institution. 

Form 8863 typically accompanies your 1040 form, and this particular document contains information on expenses paid for qualifying students, along with their name and social security number. You can claim these expenses for yourself, your spouse, or a qualified dependent.  

Who Files Form 8863?

Qualified education expenses allow you to tap into valuable educational tax credits. However, you can’t claim the expenses on your return if the student doesn’t qualify as a dependent. Instead, the student has to claim these costs directly.

You also have to pass a few other conditions to qualify for certain tax credits. For example, the student in question must attend a qualified post-secondary school. You also must fall within the appropriate income guidelines for the credits you claim. 

Where Can I Find Form 8863?

Most of the forms you need to file your taxes can be found on the IRS website. Form 8863 is available here.  

Form 8863 Education Credits

Education expenses can qualify for either the American Opportunity Credit or the Lifetime Learning Credit. These tax credits directly reduce your tax bill, so they’re very valuable. However, you can only claim one of them, so make sure you pick the right one. 

The American Opportunity Tax Credit

The American Opportunity Tax Credit (AOTC) covers students pursuing a degree, certificate, or other qualifying post-secondary credentials at a qualified institution. According to the IRS guidelines, students must meet the following criteria in order to qualify:

  • Pursuing a degree or other recognized education credential
  • Enrolled at least half time for at least one academic period beginning in the tax year.
  • Not have finished the first four years of higher education at the beginning of the tax year
  • You cannot claim the AOTC for more than four tax years.

In addition, the student’s income cannot exceed $90,000, but joint filers can earn up to $180,000 and still qualify. Claiming the AOTC can reduce your tax liability by up to $2,500. Plus, it’s a refundable credit, so you can get up to 40% refunded through your tax return.

The Lifetime Learning Credit

The Lifetime Learning Credit (LLC) covers tuition and related expenses for qualified students. According to the IRS guidelines, qualified students must meet the following criteria:

  1. You, your dependent, or a third party pay qualified education expenses for higher education.
  2. You, your dependent, or a third party pay the education expenses for an eligible student enrolled at an eligible educational institution.
  3. The eligible student is yourself, your spouse, or a dependent listed on your tax return.

This credit is based on tuition and fees paid to the school, so books and supplies don’t qualify unless they’re required for enrollment. The LLC can reduce your tax liability by up to $2,000 but, unlike the aforementioned AOTC credit, it’s non-refundable. 

What are Nonrefundable Education Credits?

Nonrefundable tax credits reduce your tax bill, but that’s all. Any leftover credits are forfeited, so you won’t receive a tax refund for the unused portion. Conversely, refundable tax credits can add to your tax refund. 

Other Form 8863 Tax Considerations

Always track expenses for tuition, fees, books, and supplies. You might need this information at tax time. You can’t always claim all of it, but it’s good to have on file in case you need it. Track all of your education expenses, including travel costs if you commute to school. 

Find More Hidden Tax Credits

Form 8863 is just the beginning. There are dozens of valuable tax credits you can claim, but you probably don’t know about many of them. Shared Economy Tax can help you find every available tax credit, so you maximize your savings. Get started now with a tax strategy session with one of our tax pros, or sign up for more free tax tips using the form below.