Article: 50005

To help cover the cost of higher education, the IRS offers two valuable tax credits: the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). Both reduce your tax bill directly, however, they differ in how they apply, who qualifies, and how much you can claim. To add education information, follow these steps:

1. Click Federal Taxes > Review > I’d like to see the forms I’ve filled out or search a form.
2. In the search bar, enter Education.
3. Click Add form beside Education.
4. Follow the prompts to enter your information.
5. The program will highlight the most beneficial credit, but you can change the selection as needed before clicking Save.

American Opportunity Tax Credit (AOTC)

• Who qualifies: Students pursuing an undergraduate degree.
• Maximum credit: Up to $2,500 per student, per year.
• Duration: Can be claimed for up to four tax years per eligible student.
• Benefit type: Per student. For example, if you have two qualifying students, you could receive up to $5,000 total.
• Eligible expenses: Tuition, fees, and course materials required for enrollment.

Lifetime Learning Credit (LLC)

• Who qualifies: Students in undergraduate, graduate, or job-related courses — including part-time or continuing education.
• Maximum credit: Up to $2,000 per return, per year.
• Duration: No limit on how many years it can be claimed.
• Benefit type: Max is per tax return, not per student.
• Eligible expenses: Tuition and fees for eligible post-secondary education.

More information about the American Opportunity Credit and Lifetime Learning Credit can be found at https://www.irs.gov/credits-deductions/individuals/education-credits-questions-and-answers

Student Loan Interest

The student loan interest deduction is automatically figured based on the qualifications. To add the form:

1. Click Federal Taxes > Review > I’d like to see the forms I’ve filled out or search a form.
2. In the search bar, enter Adjustment.
3. Click Add form beside Student Loan Adjustment.

Distribution from an education savings account (QTP, 529, Coverdell ESA)

Distributions from education savings accounts, such as Qualified Tuition Programs (QTP), also known as 529 plans, and Coverdell ESAs, for qualified education expenses are tax free. If your distributions for the year are more than your qualified education expenses, you may be required to report the excess as income and pay taxes plus a 10% penalty.

To enter your Education Savings Distribution Information:

1. Click Federal Taxes > Review > I’d like to see the forms I’ve filled out or search a form.
2. In the search bar, enter 529.
3. Click Add form beside Form 5329 – Additional Tax on Qualified Plans.
4. Choose who the form is for, then scroll down to Part II.
5. Enter your adjusted qualified education expenses for the current tax year.
   • To calculate your “adjusted” amount, take your total qualified education expenses, and subtract:
   • Tax-free assistance received in the tax year (scholarships, Pell grants, etc.), and
     • Any expenses used in figuring education credits or the tuition and fees deduction
6. Enter your gross distribution amount from your QTP or Coverdell plan. You should have received Form 1099-Q that reports this amount in box 1.
7. Enter the portion of QTP distribution that is earnings (1099-Q, box 2).
8. Enter any basis in a Coverdell ESA.
9. Select your education account type, QTP or ESA.
10. Enter any current tax year contributions to your ESA.
11. Click Save.
12. From this information, we’ll calculate any additional tax required on Form 5329 Part II. The tax will carry to Form 1040 Schedule 2, line 6.