Tax Credit

IRS Tax Information for Students and Tax Benefits

Education Tax Benefits

Federal tax law offers several benefits that can reduce the cost of your education. The two most valuable for most students are the American Opportunity Tax Credit and the Lifetime Learning Credit. This page summarizes the current rules so you know what to ask about; the IRS website is always the authoritative source.

Please note: Nazarene Bible College cannot provide tax advice. The information below is a general summary of federal rules and is not a substitute for professional guidance. Whether you qualify for any benefit depends on your individual circumstances. Please consult a qualified tax professional or the IRS directly before making decisions based on this information.

American Opportunity Tax Credit (AOTC)

The AOTC is worth up to $2,500 per eligible student, per year, for the first four years of higher education. It is calculated as 100 percent of your first $2,000 of qualified education expenses plus 25 percent of the next $2,000.

  • Available only for the first four years of postsecondary education, and only for four tax years per student.
  • The student must be pursuing a degree or other recognized education credential and be enrolled at least half time for at least one academic period beginning in the tax year.
  • The student must not have a felony drug conviction at the end of the tax year.
  • Partially refundable: if the credit brings your tax to zero, 40 percent of the remaining credit (up to $1,000) can be refunded to you.

Income limits: The full credit is available if your modified adjusted gross income (MAGI) is $80,000 or less ($160,000 or less for married couples filing jointly). It phases out between $80,000 and $90,000 ($160,000 and $180,000 filing jointly) and cannot be claimed above those amounts.

Lifetime Learning Credit (LLC)

The LLC is worth up to $2,000 per tax return, calculated as 20 percent of the first $10,000 of qualified education expenses paid for all eligible students on the return. It is a good fit for students beyond their first four years, students enrolled less than half time, and courses taken to acquire or improve job skills.

  • No limit on the number of years you can claim it.
  • The student needs to be enrolled in only one or more courses; there is no half-time or degree-program requirement, though the courses must be part of a degree program or taken to acquire or improve job skills.
  • Nonrefundable: it can reduce your tax to zero, but no portion is refunded.

Income limits: The same MAGI phase-out applies as for the AOTC — the credit phases out between $80,000 and $90,000 ($160,000 and $180,000 for married couples filing jointly).

Choosing Between the Credits

You cannot claim both credits for the same student in the same year, but you can claim the AOTC for one student and the LLC for another on the same return. Taxpayers who are married filing separately cannot claim either credit. If a student is claimed as a dependent, the parent — not the student — claims the credit.

How to Claim: Form 1098-T and Form 8863

Each January, eligible educational institutions (including Nazarene Bible College) send Form 1098-T, Tuition Statement, showing payments received for qualified tuition and related expenses. You (or your tax preparer) use it to complete Form 8863, Education Credits, which is filed with your Form 1040 and requires the college's Employer Identification Number (EIN).

You may not receive a 1098-T in limited cases — for example, if your expenses were entirely waived or paid entirely with scholarships, or entirely covered by a formal billing arrangement with your employer or a government agency. In some of those cases you may still qualify for a credit; the IRS explains the exceptions.

New Requirement Starting With the 2026 Tax Year

Under the One Big Beautiful Bill Act (Public Law 119-21, enacted July 4, 2025), for tax years beginning after December 31, 2025, claiming either credit requires a valid Social Security number for the taxpayer, spouse (on a joint return), and student — an ITIN does not qualify — plus the educational institution's EIN on the return.

Other Education Tax Benefits

  • Student loan interest deduction — deduct up to $2,500 of interest paid on qualified student loans. For 2025 returns the deduction phases out between MAGI of $85,000 and $100,000 ($170,000 and $200,000 filing jointly), and is not available to those married filing separately.
  • Employer educational assistance — up to $5,250 per year of employer-provided educational assistance can be excluded from your income, and this now permanently includes employer payments on your student loans (the limit is scheduled to adjust for inflation beginning in 2027).
  • 529 qualified tuition programs — tax-advantaged savings for education; recent law also allows 529 funds to cover certain postsecondary credentialing expenses.
  • Coverdell Education Savings Accounts — up to $2,000 per beneficiary per year may be contributed, with tax-free growth for qualified education expenses.
  • IRA withdrawals for education — early IRA distributions used for qualified higher-education expenses are exempt from the 10 percent additional tax on early withdrawals (regular income tax may still apply).

For the most current information, visit the IRS pages on Tax Information for Students and Education Credits, or see IRS Publication 970, Tax Benefits for Education.

Please note: Nazarene Bible College and its staff cannot give tax advice or determine your eligibility for any credit or deduction. Please direct questions to a qualified tax professional.