Calculating your education credit using Form 1098-T (Tuition Statement) involves determining eligibility for either the American Opportunity Credit (AOTC) or the Lifetime Learning Credit (LLC) and reporting qualified education expenses on Form 8863. Form 1098-T is issued by eligible educational institutions and provides information to help compute the credit, but it is not by itself determinative of the allowable credit.
Eligibility and Form 1098-T Requirements
To claim an education credit, you must meet all IRS eligibility requirements for either the AOTC or LLC.
- A Form 1098-T is generally required to claim a credit unless the institution is not required to furnish it or an exception applies.
- You may rely on other records (such as billing statements or receipts) to substantiate qualified expenses.
- The student must be an eligible student enrolled at an eligible educational institution.
- You cannot claim the credit if your filing status is Married Filing Separately or if you are claimed as a dependent on another return.
Qualified Education Expenses
Qualified expenses include:
- Tuition required for enrollment or attendance
- Required enrollment fees
- Course materials (books, supplies, equipment):
- Included for AOTC (even if not purchased from the institution)
- Included for LLC only if required to be paid to the institution
Nonqualified expenses include:
- Room and board
- Transportation
- Insurance and medical expenses
- Personal living expenses
Using Form 1098-T Information
Form 1098-T provides key data:
- Box 1: Payments received for qualified tuition and related expenses
- Box 5: Scholarships and grants
When completing Form 8863:
- Use actual qualified expenses paid or treated as paid during the tax year
- Reduce qualified expenses by tax-free scholarships, grants, or employer-provided educational assistance
- Amounts shown in Box 1 are informational only and must be adjusted based on the actual amount of qualified expenses eligible for the credit
Reporting on Form 8863
- Form 8863 is used to calculate both:
- American Opportunity Credit (Part I)
- Lifetime Learning Credit (Part II)
- Required information includes student and institution details (including the institution’s EIN when required).
- The allowable credit is based on:
- Qualified expenses
- Applicable percentage and statutory limits
- Modified Adjusted Gross Income (MAGI) phaseouts
- The credit is reported on Schedule 3 (Form 1040), Part I, Line 3.
Credit Calculation Overview
American Opportunity Credit (AOTC):
- 100% of the first $2,000 of qualified expenses plus 25% of the next $2,000
- Maximum credit of $2,500 per eligible student
- Up to 40% refundable (maximum $1,000 refundable)
- Limited to the first 4 tax years of postsecondary education
- Student must be enrolled at least half-time for at least one academic period during the year
Lifetime Learning Credit (LLC):
- 20% of up to $10,000 of qualified expenses
- Maximum credit of $2,000 per return
- Nonrefundable
- No limit on the number of years the credit can be claimed
Additional Considerations
- Box 8: Indicates at least half-time enrollment (relevant for AOTC eligibility)
- Box 9: Indicates graduate-level enrollment (generally relevant to LLC eligibility)
- Credits are subject to:
- MAGI phaseout limits
- Filing status restrictions
- Dependency rules (only one taxpayer may claim the student for a given year)
Source:
Form 8863 Instructions (2025)
Form 1098-T Instructions (2025)
Disclaimer: Always verify details with current Federal or State Department of Revenue Forms and Instructions. For complex situations, consult a CPA or tax attorney.