Adding a 1098-T can increase your refund, but only if you have education expenses and meet the income limits

The 1098-T form reports may have access to education expenses paid during the tax year. If you paid tuition, fees, or course materials for yourself, a spouse, or a dependent in college or graduate school, you may be able to claim the American Opportunity Tax Credit or the Lifetime Learning Credit. These credits reduce your tax bill dollar-for-dollar, which means they can increase your refund if the credit is larger than the taxes you owe.

The key word is "may." Not everyone with a 1098-T will see a refund increase. Your income, the amount of education expenses, and which credit you claim all determine whether the form actually changes what you get back. If you earned too much money that year, the credits phase out and disappear entirely.

Key Takeaways

  • The American Opportunity Tax Credit can return up to $2,500 per student per year, and up to $1,000 of it is refundable even if you owe no tax.
  • The Lifetime Learning Credit returns up to $2,000 per tax return (not per student), but it is not refundable — it can only reduce taxes you already owe.
  • Both credits disappear if your income exceeds the IRS limits, which vary by filing status and change each year.
  • You must report the 1098-T on your tax return yourself; the IRS does not automatically add it to your calculation.
  • If you paid education expenses with a 529 plan, student loan proceeds, or a scholarship, those amounts do not count toward the credits.

The two education credits and how they affect your refund

The American Opportunity Tax Credit is the larger of the two. It covers tuition, fees, and course materials for the first four years of undergraduate study. You can claim up to $2,500 per student per year. The critical part: $1,000 of this credit is refundable, meaning the IRS will send it to you even if you owe zero tax. The remaining $1,500 can only reduce taxes you owe.

The Lifetime Learning Credit covers tuition and fees for any year of undergraduate or graduate study, including courses to improve job skills. It returns up to $2,000 per tax return (not per student — if you have two children in school, you still claim only $2,000 total). Unlike the American Opportunity Credit, none of the Lifetime Learning Credit is refundable. It can only reduce the tax you owe, so if you owe no tax, this credit does not increase your refund.

You choose one credit per student per year. If you have two students, you can claim American Opportunity for one and Lifetime Learning for the other. Most people get a bigger refund with American Opportunity because of the refundable portion.

Income limits that can wipe out the credit entirely

Both credits begin to disappear when your income reaches a certain threshold. For 2023 tax returns, the American Opportunity Credit phases out between $80,000 and $90,000 for single filers, and between $160,000 and $180,000 for married filing jointly. The Lifetime Learning Credit phases out between $80,000 and $90,000 for single filers, and between $160,000 and $180,000 for married filing jointly. These numbers change each year.

If your income falls in the phase-out range, you lose part of the credit. If your income exceeds the upper limit, you lose all of it. This is one of the most common reasons someone with a 1098-T sees no refund increase — their income was too high that year.

Your income for this purpose is your Modified Adjusted Gross Income (MAGI), which is usually your Adjusted Gross Income (AGI) from your tax return. If you are unsure whether you are in the phase-out range, calculate your AGI first, then check the IRS limits for your filing status and the year you are filing.

What counts as a may have access to education expense

Not every dollar you spent on education counts. The 1098-T reports what the school says you paid, but some of that may not be may be able to access for the credit. may have access to expenses are tuition and fees required for enrollment or attendance. Course materials — textbooks, supplies, equipment — count only if you buy them from the school as part of the enrollment requirement.

Room and board do not count. Transportation does not count. Insurance does not count. Student loan interest is a separate deduction and does not reduce the amount you can claim for the education credits. Scholarships and grants reduce the amount of may have access to expenses, because you did not actually pay that portion yourself.

If you paid with a 529 plan, the expenses you paid with 529 money do not count toward the credit. Same with student loan proceeds — if you borrowed money to pay tuition, that borrowed amount does not count. The credit is only for expenses you paid out of pocket with your own money, a parent's money, or a gift.

How to report the 1098-T on your tax return

The school sends the 1098-T to you and to the IRS by January 31. You receive it whether or not you will actually claim the credit. When you file your tax return, you enter the information from the 1098-T into the education credits section of your return. If you use tax software, it will ask you about education expenses and walk you through the calculation. If you file by hand, you use Form 8863 (Education Credits).

The IRS does not automatically add the credit to your refund. You have to report it yourself. If you forget to include the 1098-T, you will not get the credit, and your refund will be smaller than it could have been. You can file an amended return (Form 1040-X) to add it later, but that takes longer.

If the 1098-T shows an amount you did not actually pay — for example, the school included a scholarship in the amount reported — you need to reduce the may have access to expenses on your return to account for that. The school's number is not always the number you use.

When the 1098-T does not increase your refund

Your refund does not increase if your income is too high. Your refund does not increase if you claim the Lifetime Learning Credit and you owe no tax (because it is not refundable). Your refund does not increase if you have already claimed the maximum credit for that student in a previous year — you can only claim American Opportunity for four years per student.

Your refund also does not increase if you paid for education with money that is already tax-free. If a parent paid tuition from a 529 plan, that parent cannot claim the credit for those expenses. If you received a scholarship that covered tuition, you cannot claim the credit for the scholarship portion. The credit is designed to help people who paid out of pocket.

If you are a dependent on someone else's tax return, you cannot claim the education credit yourself — your parent or guardian claims it. If you are claimed as a dependent and you also file your own return, you will not be able to use the credit.

Frequently Asked Questions

Can I claim the education credit if I did not receive a 1098-T?

Yes. The 1098-T is a record, not a requirement. If you paid may have access to education expenses and the school did not send you a form, you can still claim the credit. You will need to document what you paid with receipts, tuition statements, or billing records. The IRS may ask for proof if you claim the credit without a 1098-T.

What if the 1098-T amount is wrong?

Contact the school's financial aid office and ask them to issue a corrected form (Form 1098-T with a corrected box). If they do not correct it, you can report the correct amount on your tax return and keep documentation of what you actually paid. The IRS will accept your number if you can prove it.

Can I claim both the American Opportunity and Lifetime Learning Credit in the same year?

Not for the same student. You choose one credit per student per year. If you have two students, you can claim a different credit for each one. If you have one student, you pick whichever credit gives you the larger benefit.

Does the education credit reduce my refund if I owe taxes?

No. The credit reduces the taxes you owe first. If the credit is larger than your tax bill, the excess (if it is refundable) comes back to you as a refund. If the credit is smaller than your tax bill, it just lowers what you owe.

What if my parents paid my tuition — can I still claim the credit?

Only if your parents do not claim you as a dependent. If they claim you, they claim the credit. If you are independent and your parents gave you money to pay tuition, you paid it, so you claim the credit. The person who actually paid the expenses is the person who claims the credit.