Department of the Treasury

2010

Internal Revenue Service

Instructions for Form 8863

Education Credits (American Opportunity and Lifetime Learning Credits)

Section references are to the Internal Revenue Code unless You may be able to take the tuition and fees deduction

otherwise noted. for you, your spouse, or a dependent, instead of an

education credit. Figure your tax both ways and choose

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General Instructions the one that gives you the lower tax. See Form 8917, Tuition

and Fees Deduction, and chapter 6 of Pub. 970, Tax Benefits

What’s New for Education, for more information about the tuition and fees

deduction.

Midwestern disaster area. For 2010, the special benefits

available to students in a Midwestern disaster area have Who Can Claim an Education Credit

expired. You may be able to claim an education credit if you, your

spouse, or a dependent you claim on your tax return was a

Hope credit. The Hope credit is not available for 2010. student enrolled at or attending an eligible educational

institution. The credits are based on the amount of qualified Purpose of Form education expenses paid for the student in 2010 for academic

Use Form 8863 to figure and claim your education credits, periods beginning in 2010 and in the first 3 months of 2011.

which are based on qualified education expenses paid to an Qualified education expenses must be reduced by any eligible postsecondary educational institution. For 2010, there expenses paid directly or indirectly using tax-free are two education credits. educational assistance. See Tax-Free Educational

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• The American opportunity credit, part of which may be Assistance and Refunds of Qualified Education Expenses on

refundable. Complete Parts I, III, and IV. page 2. • The lifetime learning credit, which is nonrefundable. Who can claim a dependent’s expenses. If a student is Complete Parts II and IV. claimed as a dependent on another person’s tax return, only the

person who claims the student as a dependent can claim a

A refundable credit can give you a refund for any part of the credit for the student’s qualified education expenses. If a

credit that is more than your total tax. A nonrefundable credit student is not claimed as a dependent on another person’s tax

can reduce your tax, but any excess is not refunded to you. return, only the student can claim a credit.

Generally, qualified education expenses paid on behalf of

Both of these credits have different rules that can affect your the student by someone other than the student (such as a

eligibility to claim a specific credit. These differences are shown relative) are treated as paid by the student. However, qualified

in Table 1 below. education expenses paid (or treated as paid) by a student who

Table 1. Comparison of Education Credits

Caution. You can claim both the American opportunity credit and the lifetime learning credit on the same return—but not for the same

student.

American Opportunity Credit Lifetime Learning Credit

Maximum credit Up to $2,500 credit per eligible student Up to $2,000 credit per return

Limit on modified adjusted $180,000 if married filling jointly; $120,000 if married filling jointly; 

gross income (MAGI) $90,000 if single, head of household, or qualifying $60,000 if single, head of household, or qualifying

widow(er) widow(er)

Refundable or 40% of credit may be refundable; the rest is Nonrefundable—credit limited to the amount of tax you

nonrefundable nonrefundable must pay on your taxable income

Number of years of Available ONLY for the first 4 years of postsecondary Available for all years of postsecondary education and for

postsecondary education education courses to acquire or improve job skills

Number of tax years credit Available ONLY for 4 tax years per eligible student Available for an unlimited number of years

available (including any year(s) Hope credit was claimed)

Type of degree required Student must be pursuing an undergraduate degree or Student does not need to be pursuing a degree or other

other recognized education credential recognized education credential

Number of courses Student must be enrolled at least half time for at least Available for one or more courses

one academic period beginning during the year

Felony drug conviction No felony drug convictions on student’s records Felony drug convictions are permitted

Qualified expenses Tuition and required enrollment fees. Course-related Tuition and required enrollment fees (including amounts

books, supplies, and equipment do not need to be required to be paid to the institution for course-related

purchased from the institution in order to qualify. books, supplies, and equipment).

Payments for academic Payments made in 2010 for academic periods beginning in 2010 and in the first 3 months of 2011

periods

Cat. No. 53002G
is claimed as a dependent on your tax return are treated as If you or the student takes a deduction for higher education

paid by you. Therefore, you are treated as having paid expenses, such as on Schedule A or Schedule C (Form 1040),

expenses that were paid from your dependent student’s you cannot use those same expenses when figuring your

earnings, gifts, inheritances, savings, etc. For more information education credits.

and an example, see Who Can Claim a Dependent’s Expenses

in Pub. 970, chapter 2 or 3. Any qualified expenses used to figure the education

Who cannot claim a credit. credits cannot be taken into account in determining the You cannot take an education amount of a distribution from a Coverdell ESA or a

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credit if any of the following apply. qualified tuition program (section 529 plan) that is excluded

from gross income. See Pub. 970, chapters 7 and 8, for more 1. You are claimed as a dependent on another person’s tax information. return, such as your parent’s return.

2. Your filing status is married filing separately. Tax-Free Educational Assistance and Refunds

3. You (or your spouse) were a nonresident alien for any part of Qualified Education Expenses of 2010 and did not elect to be treated as a resident alien for Tax-free educational assistance includes a tax-free scholarship tax purposes. or Pell grant or tax-free employer-provided educational 4. Your modified adjusted gross income (MAGI) is one of the assistance. See chapter 1 of Pub. 970 for specific information. following.

a. American opportunity credit: $180,000 or more if married For both credits, you must reduce the total of your qualified

filing jointly, or $90,000 or more if single, head of education expenses by any tax-free educational assistance and

household, or qualifying widow(er). by any refunds of your expenses. If the refund or tax-free

b. Lifetime learning credit: $120,000 or more if married filing assistance is received in the same year in which the expenses

jointly, or $60,000 or more if single, head of household, were paid or in the following year before you file your tax return,

or qualifying widow(er). simply reduce your qualified education expenses by the amount

received and figure your education credit using the reduced

amount of qualified expenses. If the refund or tax-free There are a number of factors, such as your filing status, assistance is received after you file your return for the year in your MAGI, and whether you are subject to the which the expenses were paid, you must recapture (repay) the alternative minimum tax, that will affect the amount of

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excess credit. You do this by figuring the amount by which your any education credit you are eligible to claim. When you figure education credit(s) would have been reduced if the refund or your taxes, you may want to compare the different education tax-free assistance had been received in the year for which you credits in order to choose the method(s) that gives you the claimed the education credit(s). Include that amount as an lowest tax liability. If you qualify, you may find that a additional tax for the year the refund or tax-free assistance was combination of credits and other education benefits gives you received. the lowest tax. See Pub. 970 for information on other benefits.

Example. You paid $8,000 tuition and fees in December Qualified Education Expenses 2009 for your child’s spring semester beginning in January

Generally, qualified education expenses are amounts paid in 2010. You filed your 2009 tax return on February 2, 2010, and

2010 for tuition and fees required for the student’s enrollment or claimed a lifetime learning credit of $1,600 ($8,000 qualified

attendance at an eligible educational institution. It does not expenses paid x .20). After you filed your return, your child

matter whether the expenses were paid in cash, by check, by dropped two courses and you received a refund of $1,400.

credit or debit card, or with borrowed funds. You must refigure your 2009 lifetime learning credit using Only certain expenses for course-related books, supplies, $6,600 ($8,000 qualified expenses − $1,400 refund). The and equipment qualify. refigured credit is $1,320. You must include the difference of • American opportunity credit: Qualified education expenses $280 ($1,600 credit originally claimed − $1,320 refigured credit) include amounts spent on books, supplies, and equipment on your 2010 Form 1040, line 44, or Form 1040A, line 28. Also, needed for a course of study, whether or not the materials are enter “$280” and “ECR” in the space next to line 44 (if filing purchased from the educational institution as a condition of Form 1040) or line 28 (Form 1040A). enrollment or attendance.

• Lifetime learning credit: Qualified education expenses include Prepaid Expenses only amounts for books, supplies, and equipment required to Qualified education expenses paid in 2010 for an academic be paid to the institution as a condition of enrollment or period that begins in the first 3 months of 2011 can be used attendance. only in figuring your 2010 education credits. For example, if you

Qualified education expenses for either credit do not include pay $2,000 in December 2010 for qualified tuition for the 2011

amounts paid for: winter quarter that begins in January 2011, you can use that

• Room and board, insurance, medical expenses (including $2,000 in figuring your 2010 education credits (if you meet all

student health fees), transportation, or other similar personal, the other requirements).

living, or family expenses.

• Any course or other education involving sports, games, or You cannot use any amount paid in 2009 or 2011 to

hobbies, or any noncredit course, unless such course or other figure your 2010 education credit(s).

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education is part of the student’s degree program or (for the

lifetime learning credit only) helps the student acquire or

improve job skills. Eligible Educational Institution • Nonacademic fees, such as student activity fees, athletic An eligible educational institution is generally any accredited fees, insurance expenses, or other expenses unrelated to the public, nonprofit, or proprietary (private) college, university, academic course of instruction. vocational school, or other postsecondary institution. Also, the You should receive Form 1098-T, Tuition Statement, from institution must be eligible to participate in a student aid the college or university reporting either payments received in program administered by the Department of Education. Virtually 2010 (box 1) or amounts billed in 2010 (box 2). However, the all accredited postsecondary institutions meet this definition. amount in box 1 or 2 of Form 1098-T may be different than

what you actually paid. On Form 8863, lines 1 and 3, enter only

the amounts you paid in 2010 for qualified expenses. See Additional Information

chapters 2 and 3 of Pub. 970 for more information on Form See Pub. 970, chapters 2 and 3, for more information about

1098-T. these credits.

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Qualified Education Expenses Worksheet Specific Instructions for Part I, Line 1, Column (c)

(Do a separate worksheet for each student) Part I

American Opportunity Credit 1. Total qualified education expenses ....... .

You may be able to take a credit of up to $2,500 for qualified 2. Less adjustments: education expenses (defined earlier) paid for each student who a. Tax-free educational qualifies for the American opportunity credit. This credit equals assistance ........... . 100% of the first $2,000 and 25% of the next $2,000 of qualified b. Refunds of qualified expenses paid for each eligible student. The amount of your education expenses .... . credit for 2010 is gradually reduced (phased out) if your MAGI c. Other adjustments (see is between $80,000 and $90,000 ($160,000 and $180,000 if Pub. 970, chapter 2) .... . you file a joint return). You cannot claim a credit if your MAGI is

$90,000 or more ($180,000 or more if you file a joint return). 3. Total adjustments (add lines 2a–2c) ...... .

Student qualifications. Generally, you can take the American 4. Qualified education expenses. Subtract line 3 opportunity credit for a student if all of the following apply. from line 1 ........................ . • As of the beginning of 2010, the student had not completed

the first 4 years of postsecondary education (generally, the 5. Enter the smaller of line 4 or $4,000 here and

freshman through senior years of college), as determined by on Form 8863, Part I, column (c) ......... .

the eligible educational institution. For this purpose, do not

include academic credit awarded solely because of the

student’s performance on proficiency examinations. You cannot claim the lifetime learning credit for any • The student was enrolled in 2010 in a program that leads to a student for whom you are claiming the American degree, certificate, or other recognized educational credential. opportunity credit in the same tax year.

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workload for his or her course of study for at least one

academic period beginning in 2010. Line 3 • The student has not been convicted of a felony for Complete columns (a) through (c) on line 3 for each student for possessing or distributing a controlled substance. whom you are taking the lifetime learning credit.

If all of the above conditions are not met, you may be

able to take the lifetime learning credit for part or all of More than three students. If you are taking the lifetime that student’s qualified education expenses instead.

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learning credit for more than three students, enter “See

attached” next to line 3 and attach a statement with the required Line 1 information for each additional student. Include the amounts Complete columns (a) through (f) on line 1 for each student who from line 3, column (c), for all students in the total you enter on qualifies for and for whom you elect to take the American line 4. opportunity credit.

More than three students. If you are taking this credit for Column (c). For each student, enter the amount of qualified more than three students, enter “See attached” next to line 1 expenses remaining after reduction by certain tax-free and attach a statement with the required information for each educational assistance and refunds, as explained under additional student. Include the amounts from line 1, column (f), Qualified Education Expenses on page 2. The expenses must for all students in the total you enter on line 2. have been paid for the student in 2010 for academic periods Column (c). For each student, enter the amount of qualified beginning after 2009 but before April 1, 2011, as explained expenses remaining after reduction by certain tax-free under Prepaid Expenses on page 2. You can use the worksheet educational assistance and refunds of qualified educational below to figure the correct amount to enter in column (c). expenses, as explained under Qualified Education Expenses on

page 2. To be allowed the credit for 2010, the expenses must Qualified Education Expenses Worksheet have been paid for the student in 2010 for academic periods for Part II, Line 3, Column (c) beginning after 2009 but before April 1, 2011, as explained on

page 2 under Prepaid Expenses (Do a separate worksheet for each student) . If the student’s expenses are

more than $4,000, enter $4,000. You can use the worksheet 1. Total qualified education expenses ....... . (top of next column) to figure the correct amount to enter in

column (c). 2. Less adjustments:

a. Tax-free educational Part II assistance ........... .

Lifetime Learning Credit b. Refunds of qualified

education expenses .... . The lifetime learning credit equals 20% of qualified expenses

c. Other adjustments (see paid, up to a maximum of $10,000 of qualified expenses per Pub. 970, chapter 3) .... . return. Therefore, the maximum lifetime learning credit you can

claim on your return for the year is $2,000, regardless of the 3. Total adjustments (add lines 2a–2c) ...... . number of students for whom you are claiming the credit. The

amount of your credit for 2010 is gradually reduced (phased 4. Qualified education expenses. Subtract line 3

out) if your MAGI is between $50,000 and $60,000 ($100,000 from line 1. Enter here and on Form 8863, Part

and $120,000 if you file a joint return). You cannot claim a credit II, column (c) ...................... .

if your MAGI is $60,000 or more ($120,000 or more if you file a

joint return).

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Part III insurance agents, certain agent or commission drivers and

traveling salespersons, and certain homeworkers. Refundable American Opportunity Credit Support. Your support includes all amounts spent to provide

you with food, lodging, clothing, education, medical and dental Line 13 care, recreation, transportation, and similar necessities. To If you were under age 24 at the end of 2010 and the conditions figure your support, count support provided by you, your listed below apply to you, you cannot claim any part of the parents, and others. However, a scholarship received by you is American opportunity credit as a refundable credit on your tax not considered support if you are a full-time student. See Pub. return. Instead, your allowed credit, which is figured in Part IV, 501, Exemptions, Standard Deduction, and Filing Information, will be used to reduce your tax as a nonrefundable credit only. for details.

You do not qualify for a refund if 1(a, b, or c), 2, and 3 below

apply to you. Part IV

Nonrefundable Education Credits 1. You were:

a. Under age 18 at the end of 2010, or Line 16

b. Age 18 at the end of 2010 and your earned income Enter your tentative lifetime learning credit from Part II, line 6, (defined below) was less than one-half of your support and go to line 17. (defined later), or Note. If you are claiming only the American opportunity credit, c. A full-time student over age 18 and under age 24 at the you will not have an entry on this line. Instead, enter the amount end of 2010 and your earned income (defined below) was from line 15 on line 6 of the Credit Limit Worksheet below.

less than one-half of your support (defined later).

2. At least one of your parents was alive at the end of 2010. Line 22

3. You are not filing a joint return for 2010. You will have an amount on line 22 if you are claiming the

lifetime learning credit. Enter this amount on line 1 of the Credit

If you meet these conditions, check the box next to line 13, Limit Worksheet below.

skip line 14, and enter the amount from line 13 on line 15. Line 23 Earned income. Examples of earned income include wages, Complete the credit limit worksheet to figure your salaries, tips, and other taxable employee pay; net earnings nonrefundable education credit. from self-employment; and gross income received as a

statutory employee. Statutory employees include full-time life

Credit Limit Worksheet—Form 8863, Line 23

Nonrefundable lifetime learning credit

1. Enter the amount from Form 8863, line 22 ................................................ . 1.

2. Enter the amount from Form 1040, line 46, or Form 1040A, line 28 ............ . 2.

3. Enter the total, if any, of your credits from:

• Form 1040, lines 47, 48, and the amount from Schedule R entered on line 53 } 3. • Form 1040A, lines 29 and 30

4. Subtract line 3 from line 2 ........................................................... . 4.

5. Nonrefundable lifetime learning credit. Enter the smaller of line 1 or line 4 ....................... . 5.

Nonrefundable American opportunity credit

6. Enter the amount from Form 8863, line 15 ................................................ . 6.

7. Enter the amount from Form 1040, line 46, or Form 1040A, line 28 ............ . 7.

8. Enter the total, if any, of your credits from:

• Form 1040, lines 47, 48, and the amount from Schedule R entered on line 53,

and the amount from line 5 above } 8.

• Form 1040A, lines 29 and 30, and the amount from line 5 above

9. Subtract line 8 from line 7 ........................................................... . 9.

10. Nonrefundable American opportunity credit. Enter the smaller of line 6 or line 9 ................... . 10.

11. Nonrefundable education credits. Add line 5 and line 10. Enter here and on Form 8863, line 23 ......... . 11.

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