American Opportunity Tax Credit.
In plain English
The American Opportunity Tax Credit (AOTC) is a tax break for money you spend on tuition, fees, and required course materials during a student's first four years of college. For tax year 2025 it is worth up to $2,500 per eligible student, and 40% of it (up to $1,000) is refundable, meaning you can get that part back even if you owe no tax. You claim it on Form 8863. It only covers undergraduate students who are enrolled at least half-time and pursuing a degree. The full credit is available if your modified adjusted gross income is under $80,000 (under $160,000 married filing jointly), and it phases out completely by $90,000 (or $180,000 joint).
01Why it matters
College is expensive, and this credit can put real money back in your pocket at tax time, but only if you keep your tuition receipts and the 1098-T form your school sends.
02The math, step by step
Say you paid $4,200 in tuition and required books for your sophomore year. The credit is 100% of the first $2,000 plus 25% of the next $2,000, which works out to the full $2,500. If your tax bill was only $1,800, the credit wipes that out and you get up to $1,000 of the leftover refunded (the 40% refundable portion).
03What this is NOT
The AOTC is only for the first four years of an undergraduate degree and is partly refundable. The Lifetime Learning Credit covers any year of school including grad and part-time, but it is smaller and not refundable. You cannot claim both for the same student in the same year.
04Receipts
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Plain-English answers from our glossary. Receipts included. Never advice.
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