What Is the Lifetime Learning Tax Credit? And How Does It Work?

It’s no secret that getting a college degree is more expensive than it’s ever been—and it’s not getting any less expensive. In fact, the average cost of college has more than doubled since the start of the 21st century.¹  

Shoot, it might be easier to get your hands on front row tickets to a Taylor Swift concert than it is to pay for a college education. Maybe.

But there is a small source of relief from the rapidly accelerating cost of getting a higher education—and it’s called the lifetime learning credit. This tax credit allows some college students (or parents claiming a dependent child who is an eligible student on their tax return) to cut their tax bill dollar for dollar.

But how does this particular tax credit work? And how do you know if you’re eligible to claim it? We’re glad you asked! Let’s talk about everything you need to know about the lifetime learning credit.      

What Is the Lifetime Learning Credit?

The lifetime learning credit (LLC) is an educational tax credit designed to ease the sting out of higher education costs.

The credit allows eligible students to lower their tax bill by up to $2,000, and you can claim the credit for yourself, your spouse or your dependent children.²

How Does the Lifetime Learning Credit Work?

The LLC is one of two education credits a college student could claim on their tax return—the other being the American opportunity tax credit (AOTC).

While the AOTC is partially refundable, the lifetime learning credit is a nonrefundable credit—which means if the amount of the credit is larger than your tax bill, you won’t receive the excess amount as a refund.

But still, the lifetime learning credit reduces what you owe in taxes (it could even lower your tax bill to zero) and covers 20% of your first $10,000 in qualified educational expenses (for a maximum credit of $2,000 per tax return).

And unlike the AOTC, where multiple credits can be claimed for multiple eligible students, the maximum of $10,000 in eligible expenses and the $2,000 maximum credit is per return, not per student. So yes, you can claim the credit for multiple students, but the maximum credit amount is still $2,000.³

It’s important to note that you can claim both the American opportunity tax credit and the lifetime learning credit on the same tax return, but not for the same student or for the same qualified expenses.⁴ 

For example, a student who goes to undergrad and graduate school in the same tax year might be eligible for both credits, but can only claim one on his return. On the other hand, if a married couple claims two of their college-aged children on their tax return, they can claim the AOTC for one student and the LLC for the other.

Are There Income Limits for the Lifetime Learning Credit?

Like most deductions and tax credits, the LLC phases out for higher-income earners. For 2023, the LLC phases out between $80,000 and $90,000 of modified adjusted gross income (MAGI) for single taxpayers. With a MAGI of $90,000 or higher, you can't claim any credit as a single taxpayer.⁵

If you’re married filing jointly for 2023, the credit phases out between $160,000 and $180,000 MAGI. Beyond $180,000, married couples will not be able to claim the credit. If you’re married filing separately, you are ineligible to claim the credit no matter what your income is.⁶ 

Eligible Students: Who Qualifies for the Lifetime Learning Credit?

To claim the credit, you need to be an eligible student or claim a dependent who is an eligible student on your tax return. So, what makes a student “eligible” for the lifetime learning credit?

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The good news is that the criteria for being an eligible student for the LLC are much broader than that for the American opportunity tax credit. Which means if you’re not eligible for the AOTC, keep your chin up—you could still qualify for the LLC!

Here’s what you need to be eligible for the LLC:

• A student must be enrolled in or taking courses at an eligible educational institution (more on that later). They can be an undergraduate student or a graduate student to qualify for the credit. (Only undergraduate students can qualify for the AOTC.)

• A student can claim the credit for taking just one or two classes during the tax year. (The credit does not require at least half-time study like the AOTC does.)

• Eligible students include students enrolled in a degree or certificate program, folks taking courses for job development, or anyone simply interested in exploring a new subject. So if you’re retired and want to enroll in a course about bird watching or how to play the steel drums at your local college, you just might be eligible to claim the LLC!⁷   

Eligible Expenses: What Expenses Are Eligible for the LLC?

On the other hand, eligible expenses are a little more restrictive for the LLC than they are for the AOTC. Tuition and fees are eligible, but books and equipment must be purchased directly from the institution (which just means you can’t buy your Psych 101 textbooks from Amazon) and they must be required for the classes you signed up for.⁸

These costs are also not eligible for the LLC: any expenses paid with nontaxable scholarships or grants, room and board, and travel expenses. 

Eligible Institutions: What Higher Education Institutions Are Eligible for the Lifetime Learning Credit?

Eligible educational institutions include any institution of higher learning that participates in the student aid program run by the U.S. Department of Education. This includes most colleges, universities, trade schools and other post-secondary institutions.⁹

How Is the Lifetime Learning Credit Calculated?

Like we mentioned earlier, the lifetime learning credit applies to 20% of the first $10,000 of eligible expenses. So the maximum credit you can get is $2,000. The credit is nonrefundable, which means it’s limited to your tax liability and anything extra will not be refunded to you.  

So, let’s say Kyle and Sarah have a household income of $100,000, and they have a college-aged son named John. John is enrolled full time at a public state university and racked up $11,000 in eligible education expenses for the 2023 tax year—which includes his tuition, fees, and books he purchased through his school.

Since Kyle and Sarah claim John as a dependent on their tax return, they can also claim the lifetime learning credit. And because John has more than $10,000 in eligible education expenses, they qualify for the maximum $2,000 credit.

After taking the standard deduction, the couple’s tax bill for the 2023 tax year comes out to about $8,230. But thanks to the LLC, they can lower their tax bill dollar for dollar down to $6,230!    

You’ll want to make sure you have receipts or tax statements on hand to back up any eligible educational expenses you or your dependents are using to claim and calculate the lifetime learning credit.

How Do I Claim the Lifetime Learning Credit?

To claim the lifetime learning credit, the first thing you’ll need is Form 1098-T (Tuition Statement), which will be sent to you by the college or higher educational institution you attended.¹⁰ This form will show any education expenses that might be eligible for the lifetime learning credit.  

Then, you’ll need to fill out Form 8863 (Education Credits), which will help you figure out which education credits you qualify for and choose which credit to claim.¹¹

Once you’ve done that, you’ll attach your completed Form 8863 to your tax return (Form 1040 or Form 1040-SR).¹²

As you complete these steps, make sure you have the following information on hand to make the process go smoothly:

• Student’s Social Security number
• Name and address of the school the student attends
• Adjusted qualified expenses amount (how much you can claim for the AOTC)
• Your (or you and your spouse’s if you file married, filing jointly) modified adjusted gross income (MAGI)

The Lifetime Learning Credit vs. American Opportunity Credit: Which One Is Better?

For most students who are in one of their first four years of college and pursuing an undergraduate degree, the American opportunity credit can offer a better bargain than the lifetime learning credit when it comes to tax savings. 

While the LLC can save you up to $2,000 in taxes per tax return, the maximum amount for the AOTC is $2,500 per student. And to make the deal even sweeter, up to $1,000 of the AOTC can be sent back to you as part of your tax refund—even if you don't owe any taxes!

So if you or your dependent student is eligible for both the LLC and the AOTC, you’ll probably want to go with the latter to take advantage of that refundable tax credit.

Lifetime Learning Credit vs. American Opportunity Credit: What’s the Difference?

	LLC	AOTC
What is the maximum benefit?	Up to $2,000 credit per tax return	Up to $2,500 credit per eligible student
How is the credit calculated?	20% of the first $10,000 of eligible expenses paid during the tax year	100% of the first $2,000 of eligible expenses, plus 25% of the next $2,000, paid during the tax year
Is the credit refundable or nonrefundable?	Nonrefundable	Partially refundable (40% of the credit is refundable)
What educational expenses are eligible for the credit?	Tuition, fees, books and equipment required for enrollment	Tuition and fees are eligible, but books and equipment must be purchased directly from the institution as a condition of enrollment.
Which students are eligible for the credit?	The credit is available for undergraduate and graduate students, and for anyone taking courses for job development or continuing education. Students don’t need to pursue a degree or other recognized education credential to claim the credit.	The credit is only available for students who haven’t completed four years of undergraduate college education. Students must be pursuing a degree or other recognized education credential to claim the credit.
How many courses taken are necessary to claim the credit?	Available for any student taking one or more courses	Student must be enrolled at least half time for at least one academic period.
How many tax years is the credit available for?	No limit	Only available for four tax years per student
What are the income limits (MAGI) for the credit?	$180,000 for married filing jointly, $90,000 for single filers Married filing separately cannot claim the credit	$180,000 for married filing jointly, $90,000 for single filers Married filing separately cannot claim the credit

Get Connected With a Tax Pro

As you can see, there’s a lot that goes into figuring out whether you or your rowdy college kids qualify for one (or both) of the education tax credits. And then there’s making sure you have all the numbers right when you’re calculating the credit.

If you have questions about education tax credits or want help claiming the credit on your tax return, connect with one of our RamseyTrusted tax professionals today!

Are you more of a do-it-yourself kind of person? Then you can take advantage of Ramsey SmartTax powered by TaxSlayer. Our easy-to-use tax filing software walks you through the tax filing process step by step and helps you take advantage of any tax deductions and credits that can help lower your tax bill—including the lifetime learning credit.

File your taxes with Ramsey SmartTax!