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Families who paid college expenses in 2025 may qualify for a federal tax credit worth up to $2,500 per eligible student.
The American Opportunity Tax Credit (AOTC), administered by the Internal Revenue Service (IRS), helps offset the cost of higher education by reducing the amount of federal income tax a taxpayer owes.
The benefit is partially refundable, which means qualifying filers may receive part of the credit as a refund even if they owe less in federal income tax than the amount of the credit.
Who qualifies for the $2,500 IRS education tax credit?
The AOTC is available to eligible taxpayers who pay qualified education expenses for themselves, their spouse, or a dependent claimed on their tax return.
The student must be pursuing a degree or another recognized educational credential and be enrolled at least half-time for at least one academic period that began during 2025.
The credit is limited to the first four years of postsecondary education and can be claimed for a maximum of four tax years per eligible student.
Income limits also apply
For the 2025 tax year, a taxpayer’s modified adjusted gross income must be below $90,000, or below $180,000 for married couples filing jointly. The credit begins to phase out when income reaches $80,000 for other filers or $160,000 for joint filers.
Qualified expenses include tuition, required enrollment fees, and books, supplies, and equipment needed for the student’s courses. Taxpayers generally need Form 1098-T, the Tuition Statement issued by the educational institution, although exceptions apply. They must also complete Form 8863 and submit it with Form 1040 or Form 1040-SR.
How do taxpayers claim the education tax credit?
Taxpayers must claim the AOTC when filing their federal income tax return. They should complete Form 8863 and attach it to Form 1040 or Form 1040-SR. The form calculates both the refundable and nonrefundable portions of the credit.
The IRS does not automatically deposit $2,500 into every eligible family’s bank account. Instead, the credit is applied to the taxpayer’s return. If the taxpayer qualifies for a refund, the refundable portion may be included in it; the timing and payment method depend on the return and the IRS’s processing.
Taxpayers should keep records of tuition payments and other qualified expenses, along with the information provided by their educational institution. They should also check the official IRS instructions to confirm their eligibility before claiming the credit.