The lifetime learning credit is a nonrefundable federal income tax credit for qualified tuition and related expenses, worth 20% of the first $10,000 of qualified expenses paid for all students claimed on the return, up to $2,000 per return rather than per student (IRS, Education credits: AOTC and LLC). The credit is gradually reduced where modified adjusted gross income falls between $80,000 and $90,000, or between $160,000 and $180,000 on a joint return, and no credit is allowed at or above the top of that band (IRS, Instructions for Form 8863). It is allowed by section 25A of the Internal Revenue Code and figured on Form 8863. The credit is available for an unlimited number of tax years and for one or more courses, and the student does not have to be pursuing a program leading to a degree or other recognized education credential, but the course must be part of a postsecondary degree program or taken by the student to acquire or improve job skills (IRS, Publication 970 (2025)).
How the $2,000 Maximum Is Built
The maximum is arithmetic rather than a figure the statute states, because the ceiling sits on the expenses. Section 25A(c)(1) sets the credit at 20 percent of so much of the qualified tuition and related expenses paid by the taxpayer during the taxable year as does not exceed $10,000, and that paragraph carries the heading “Per taxpayer credit” (26 U.S.C. 25A).
Form 8863 runs that arithmetic once for the whole return. Line 10 totals the adjusted qualified education expenses from every Part III, line 11 takes the smaller of that total or $10,000, and line 12 multiplies the result by 20% (IRS, Form 8863 (2025)).
Say a client paid tuition for two students in the same year, and income stays below the phase-out.
Student A, adjusted qualified education expenses 7,000
Student B, adjusted qualified education expenses 6,000
Total 13,000
Amount that can be counted (capped) 10,000
Credit at 20 percent of the capped amount 2,000
Student A alone, 20 percent of 7,000 1,400
Expenses above the cap, producing no credit 3,000Only the pooled expenses up to that ceiling count, so the amount above it produces no credit at all. A second student still adds credit while the pool sits below the ceiling, and adds nothing beyond the point where the ceiling is reached.
Per Return, Not Per Student
The two education credits are counted on different units. Section 25A(b)(1) heads the American Opportunity Tax Credit “Per student credit” while section 25A(c)(1) heads this one “Per taxpayer credit” (26 U.S.C. 25A).
Form 8863 shows the same split in its line structure. The American Opportunity arithmetic finishes inside Part III, student by student, on lines 27 through 30, so each student produces a finished credit amount. Line 31 produces no credit at all, because it holds only that student’s expenses, which then feed the single pooled computation above (IRS, Form 8863 (2025)).
The rest of the contrast with the American Opportunity Tax Credit, and the coordination rules that exist only because there are two of these, are set out in education credits. How a nonrefundable credit behaves once it meets the tax is run line by line in tax credit.
What Counts as a Qualified Expense
Qualified tuition and related expenses are tuition and fees required for the enrollment or attendance of the taxpayer, the taxpayer’s spouse, or a dependent the taxpayer claims, at an eligible educational institution (26 U.S.C. 25A). Athletic fees and insurance expenses are excluded by section 25A(f)(1)(C) (26 U.S.C. 25A), and insurance stays out even where the institution requires it as a condition of enrollment or attendance (IRS, Publication 970 (2025)). Student activity fees are included only where they must be paid to the institution for enrollment or attendance (IRS, Publication 970 (2025)).
Course materials are where this credit is narrower than the American Opportunity Tax Credit. The substitution of “tuition, fees, and course materials” in section 25A(f)(1)(D) applies only when the American Opportunity Tax Credit is being figured (26 U.S.C. 25A), so for the lifetime learning credit books, supplies and equipment qualify only if they are required to be paid directly to the school as a condition of enrollment or attendance (IRS, Education credits: AOTC and LLC).
The job-skills rule is where this credit is wider. Expenses for a course involving sports, games or hobbies, and expenses for a noncredit course, generally do not qualify, but they do qualify if the course is part of the student’s degree program or is taken by the student to acquire or improve job skills (IRS, Publication 970 (2025)). The statute is where that widening comes from. Section 25A(c)(2)(B) provides that, for this credit, qualified tuition and related expenses include expenses described in section 25A(f)(1) with respect to any course of instruction at an eligible educational institution to acquire or improve job skills of the individual (26 U.S.C. 25A).
Whatever qualifies is then reduced. Tax-free educational assistance and refunds come out of the expenses on the Adjusted Qualified Education Expenses Worksheet before anything reaches line 31 (IRS, Instructions for Form 8863). Expenses used to figure the tax-free portion of a distribution from a qualified tuition program are off the table for this credit as well (IRS, Publication 970 (2025)), a split worked through in 529 tax benefits.
Where the Credit Gets Decided in a Return
A student who fails any of the Form 8863 stop questions on lines 23 through 26 is routed to line 31, the lifetime learning line, for that student (IRS, Form 8863 (2025)).
The income limit is shared with that credit, and it is fixed in flat dollars. Section 25A(d) reduces the credit in proportion to the excess of modified adjusted gross income over $80,000, or $160,000 on a joint return, divided by $10,000, or $20,000 on a joint return (26 U.S.C. 25A). Those figures will not move with the cost of living, because the subsection that once indexed this credit’s income limits, section 25A(h), was repealed in 2020 (26 U.S.C. 25A).
One paperwork detail is worth catching at review. Section 25A(g)(1)(B) conditions the institution’s employer identification number requirement on the American Opportunity Tax Credit alone (26 U.S.C. 25A), and Form 8863 asks for that number when the American Opportunity Tax Credit is claimed, when the student received Form 1098-T from the institution for the year, or when the student received one from it for the prior year with box 7 checked (IRS, Form 8863 (2025)).
Common Questions
Tuition and enrollment fees at an eligible educational institution, paid for the taxpayer, a spouse on a joint return, or a dependent claimed on the return, qualify. Course-related books, supplies and equipment qualify only where the school requires them to be paid directly to it as a condition of enrollment or attendance (IRS, Education credits: AOTC and LLC).
Total the adjusted qualified education expenses for every student on the return, take the smaller of that total or $10,000, multiply by 20%, then apply the income phase-out ratio and hold the result to the tax available on the Credit Limit Worksheet. Form 8863 does that on lines 10 through 19 (IRS, Form 8863 (2025)).
One reason belongs to this credit alone: the American Opportunity Tax Credit was already taken for the same student that year. The others are filing as married filing separately, being listed as a dependent on someone else’s return, being a nonresident alien for part of the year without an election to be treated as a resident, and modified adjusted gross income of $90,000 or more, or $180,000 or more on a joint return (IRS, Publication 970 (2025)). Which taxpayer may use a student’s expenses at all turns on the rules set out in dependents.
A firm that wants its education-credit workpapers and Form 8863 support prepared and reviewed before anything client-facing depends on them can put a real block of that work through a trial task.
