American Opportunity Tax Credit: Who Qualifies and How to Claim

The American opportunity tax credit (AOTC) is worth up to $2,500 per eligible student for tax year 2025, and up to $1,000 of it can come back as a refund even if you owe no tax. It covers the first four years of college for students enrolled at least half-time in a degree or credential program. You claim it on IRS Form 8863.

This guide is written for students who work while they study, including part-timers and people whose employers help with tuition. It covers who qualifies, the 2025 income limits, worked examples with real numbers, how to read your Form 1098-T, and how to claim the credit step by step.

Key Takeaways

• For 2025 returns (filed in 2026), the AOTC equals 100% of the first $2,000 of qualified expenses plus 25% of the next $2,000, for a maximum of $2,500 per eligible student.
• 40% of the credit is refundable, so up to $1,000 can be paid to you even if your tax bill is zero.
• The full credit is available with modified adjusted gross income (MAGI) of $80,000 or less ($160,000 joint); it phases out completely at $90,000 ($180,000 joint).
• Part-time students qualify if they carry at least half the normal full-time workload for at least one academic period that starts in the tax year.
• The credit can be claimed for a student for no more than 4 tax years, and only before the student has completed the first 4 years of postsecondary education.
• Expenses paid with tax-free help, such as up to $5,250 a year of employer educational assistance or a tax-free scholarship, cannot also be used for the AOTC.

What Is the American Opportunity Tax Credit?

The AOTC is a federal tax credit for undergraduate-level college costs that cuts your tax bill dollar for dollar. According to IRS Publication 970 (2025), Tax Benefits for Education, you can claim up to $2,500 for each student who qualifies.

Forty percent of the AOTC can be paid to you as a refund once your tax reaches zero, which is why it matters to students with modest paychecks. The other 60% can only reduce tax you owe.

You can use only one education credit per student per year. If a student qualifies for both the AOTC and the lifetime learning credit, Pub 970 says the AOTC "will always be greater."

How the Credit Is Calculated

The math has two steps. You get 100% of the first $2,000 of adjusted qualified expenses, then 25% of the next $2,000. So $4,000 of expenses produces the full $2,500.

American Opportunity Tax Credit Qualifications

The student can be you, your spouse, or a dependent you claim on your return. For tax year 2025, Pub 970 lists four student requirements, and all of them must be met.

1. Not past the first four years. As of the beginning of 2025, the student had not completed the first 4 years of postsecondary education, as determined by the school. Credit earned only through proficiency exams does not count toward those four years.
2. Four-tax-year limit. The AOTC has not been claimed for the student for any 4 earlier tax years. The years do not have to be consecutive, and claims by parents count toward the limit.
3. Half-time in a credential program. For at least one academic period beginning in 2025, the student was enrolled in a program leading to a degree, certificate, or other recognized credential and carried at least half the normal full-time workload.
4. No felony drug conviction. As of the end of 2025, the student had not been convicted of a felony for possessing or distributing a controlled substance.

Your school sets what counts as half-time. A spring term that starts in the first three months of 2026 counts as a 2025 period if you paid for it in 2025.

Who Can't Claim the Credit

Even with an eligible student, you can't claim the AOTC for 2025 if any of these apply:

• Your filing status is married filing separately.
• Someone else, such as a parent, claims you as a dependent on their return.
• Your MAGI is $90,000 or more ($180,000 or more if married filing jointly).
• You (or the student) weren't issued an SSN, ITIN or ATIN by the due date of the 2025 return, including extensions.

AOTC for Part-Time Students

Two or three classes a term is often enough. The IRS education credits Q&A says a part-time student can claim the AOTC for up to four tax years as long as they carry at least half the full-time load in at least one academic period each year and haven't finished four years of college.

If you're below your school's half-time standard in every term of the year, the AOTC is off the table for that year. The lifetime learning credit may still apply, because it only requires one course.

Working Students and the Refundable Part

The refund has one exception, aimed at younger students supported by their parents. Under the Form 8863 instructions, you can't get the refundable part if all three of these are true:

1. You were under 18 at the end of 2025; or 18 with earned income below half your support; or over 18 and under 24, a full-time student, with earned income below half your support.
2. At least one of your parents was alive at the end of 2025.
3. You aren't filing a joint return.

This is where working matters. A 21-year-old full-time student whose wages cover more than half of their own support can get the refund, and so can a 22-year-old enrolled only half-time. If the rule applies, the credit can still reduce tax you owe.

American Opportunity Tax Credit Income Limits

The credit shrinks as income rises. For 2025, the phase-out uses your MAGI, which for most filers is simply the adjusted gross income on Form 1040, with a few foreign-income exclusions added back.

Inside the phase-out range, multiply the tentative credit by a fraction. For a single filer, the top is $90,000 minus your MAGI and the bottom is $10,000. For joint filers, it is $180,000 minus MAGI over $20,000.

Worked Examples

These simplified examples use the 2025 rules and assume every eligibility test is met.

Example 1: Half-Time Student Working 25 Hours a Week

Maya is 22, single, and no one claims her as a dependent. She works 25 hours a week and is enrolled half-time at a community college. In 2025 she paid $3,200 in tuition and required fees and $300 for required course materials.

• Qualified expenses: $3,500. Course materials count for the AOTC even when bought somewhere other than the school.
• Credit: $2,000 + (25% x $1,500) = $2,375.
• Refundable part: 40% x $2,375 = $950.

Because Maya is not a full-time student, the under-24 restriction does not block the refund. If her income tax before credits is $600, the nonrefundable $1,425 wipes that out, and the $950 refundable part is paid to her.

Example 2: Employer Pays Part of the Tuition

Jordan works full-time and is a sophomore in an online degree program. Tuition and fees for 2025 were $7,000. His employer's written educational assistance program paid $5,250, which was excluded from his wages.

• Adjusted qualified expenses: $7,000 - $5,250 = $1,750.
• Credit: 100% of $1,750 = $1,750.

Jordan can't count the $5,250 his employer paid tax-free, but he can count the $1,750 he paid himself. If he also bought $400 of required books out of pocket, his expenses would rise to $2,150 and his credit to $2,037.50.

Example 3: Income in the Phase-Out Range

Dana is single with MAGI of $85,000 and paid $4,500 in qualified tuition. Her tentative credit is $2,500. Applying the phase-out: $2,500 x ($90,000 - $85,000) / $10,000 = $1,250.

Employer Tuition Assistance, Scholarships and the No-Double-Benefit Rule

Pub 970 lists the things you can't do. You can't claim a credit for expenses paid with tax-free educational assistance, deduct the same expenses elsewhere, or use one student's expenses for both credits. Tax-free assistance includes:

• The tax-free part of scholarships, fellowships and Pell grants (see our guide to Pell Grant eligibility).
• Employer-provided educational assistance under a qualified program.
• Veterans' educational assistance.
• Other nontaxable educational payments, other than gifts or inheritances.

Tuition paid with wages, loans, gifts, inheritances or savings still counts.

How Employer Assistance Works

Under chapter 10 of Pub 970, you can exclude up to $5,250 a year of educational assistance your employer provides through a written educational assistance program. IRS Publication 15-B (2026) confirms the $5,250 annual exclusion for 2026 and says the 2025 tax law permanently extended the part covering employer payments on student loans.

So if your employer covers $5,250 of a $9,250 tuition bill, the $4,000 you pay yourself can still produce the full $2,500 AOTC.

When Including a Scholarship in Income Helps

If a scholarship can be used for living costs like rent, the student can choose to report part of it as income and treat that part as paying room and board, which frees tuition dollars for the AOTC. In a Pub 970 example, a student with a $5,600 flexible scholarship gets no credit by excluding it all, but gets the full $2,500 by including $4,000 in income. This can shrink other credits, such as the earned income credit, so run the numbers both ways.

Form 8863 and the 1098-T: How to Claim the Credit

You claim the AOTC by attaching Form 8863, Education Credits, to your Form 1040 or 1040-SR. The form has three parts, and the instructions say to fill in Part III first.

1. Get your Form 1098-T. Schools generally had to send 2025 forms by February 2, 2026. See the IRS Form 1098-T page.
2. Check it against your records. Box 1 shows payments the school received, but Pub 970 says it may not match what you paid. Use what you actually paid in 2025, and keep receipts for anything not shown.
3. Find adjusted qualified expenses. Add tuition, required fees and required course materials. Subtract tax-free scholarships, grants, employer assistance and refunds.
4. Complete Part III for each student. Enter the school's information on line 22, including its employer identification number (EIN), which is required for the AOTC. Answer the eligibility questions on lines 23 to 26 and enter up to $4,000 of expenses on line 27.
5. Complete Part I. Enter your MAGI, apply any phase-out, and figure the refundable amount on line 8. Check the box on line 7 if the under-24 rule applies.
6. Complete Part II. The nonrefundable part goes from line 19 to Schedule 3 (Form 1040), line 3. Pub 970 says the refundable part goes on Form 1040, line 29.
7. Keep your records. Save the 1098-T, receipts, and proof of enrollment and half-time status in case the IRS asks.

What If You Don't Get a 1098-T?

You can still claim the credit if your school isn't required to issue one, such as when expenses were paid entirely by scholarships or under a formal billing arrangement with an employer, as long as you can prove enrollment and payment. If the school should have sent one and didn't, Pub 970 says you or the student must request it after February 2, 2026, and before filing.

What Happens If You Claim It Wrongly

Watch for three easy mistakes: a parent and student both claiming the same student, using the 1098-T total without subtracting tax-free aid, and leaving off the school's EIN.

Errors carry real penalties. If the IRS denies or reduces your AOTC for reasons other than a math or clerical error, you must attach Form 8862 the next time you claim it. Pub 970 adds that a claim found to be reckless or intentional can bar you for 2 years, and fraud for 10 years.

What Changes for 2026 Returns

Pub 970 flags one change for tax year 2026 (filed in 2027): beginning in 2026, anyone claiming the AOTC or lifetime learning credit must have a Social Security number that is valid for work and was issued before the return's due date. If the student is someone else, such as your child, the student also needs a valid SSN.

The dollar amounts and income limits above are for 2025. When the IRS releases the 2026 edition of Pub 970 and the Form 8863 instructions, check them before you file.

Getting Help When Work and School Collide

The AOTC requires staying enrolled at least half-time, which is hard when shifts run long. If you're behind on coursework, you can get homework help and tutoring so you can stay on track. For scheduling ideas, see our guide on how to manage college and work.

Frequently Asked Questions

Can I Claim the American Opportunity Tax Credit If My Parents Pay My Tuition?

It depends on who claims you as a dependent. If your parents claim you, only they can take the AOTC, and they can count expenses you paid. If no one claims you, you can claim it, and Pub 970 treats payments others make directly to the school as paid by you.

Can Part-Time Students Get the American Opportunity Tax Credit?

Yes, if you carry at least half your school's normal full-time load for at least one academic period starting in the tax year. You must also be in a degree or credential program. Students taking fewer classes may be able to use the lifetime learning credit instead.

Is the American Opportunity Tax Credit Refundable?

Partly. Forty percent of the credit, up to $1,000, is refundable for most filers. The refund is blocked for certain students under 24 whose earned income was less than half their support, have a living parent, and don't file jointly.

Can Graduate Students Claim the AOTC?

Sometimes. The IRS Q&A says a student who moves from undergraduate to graduate study during the year can claim it if they hadn't completed four years of postsecondary education as of the start of the year and haven't used up four tax years.

Do I Need a 1098-T to Claim the American Opportunity Credit?

Generally yes, but there are exceptions. You can claim it without one if your school isn't required to issue one, or if you asked the school for one after February 2, 2026, and before filing and can prove enrollment and payment. You must also put the school's EIN on Form 8863.

How Many Times Can You Claim the American Opportunity Tax Credit?

No more than four tax years per student. The years don't have to be in a row, and claims made by your parents count toward the four. After that, the lifetime learning credit has no year limit.

This article is general information, not tax or legal advice. Check your own situation with a qualified tax professional, your school's financial aid office, or the IRS.

Figures come from IRS Publication 970 (2025), the 2025 Instructions for Form 8863, the IRS Education Credits: AOTC and LLC page, the IRS education credits Q&A, and IRS Publication 15-B (2026), as of Oct. 2026.