Achievable IRS SEE Part 1

4. Credits

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Education, business, and specialized tax credit

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Education and Income Credits

Definitions

Postsecondary Education: Education pursued after high school, including programs at colleges, universities, vocational schools, and other accredited institutions. For AOC purposes, this refers to the first four years of undergraduate-level study at an eligible institution.
Eligible Educational Institution: Any accredited college, university, vocational school, or other postsecondary institution eligible to participate in federal student aid programs administered by the U.S. Department of Education.

Education credits

American Opportunity Credit

The American Opportunity Credit (AOC) is partially refundable and the Lifetime Learning Credit is nonrefundable.The credit applies to the first four years of postsecondary education at an eligible educational institution received by a taxpayer, a taxpayer’s spouse, and taxpayer’s dependents. The student must be at least half-time enrollment in either a certificate program, degree program, or to maintain or improve job skills.
The AOC offers a refundable portion of up to 40% of the total $2,500 credit, which equals $1,000 for eligible individuals. Taxpayers who have a zero tax liability can still receive the refundable portion of the credit.
The MAGI phase-out range for unmarried individuals is $80,000 to $90,000.
The MAGI phase-out range for married couples filing jointly is $160,000 to $180,000.
AOC is not available to taxpayers who use the married filing separately filing status.

Definitions

MAGI Phase-Out: A gradual reduction of a tax credit or deduction as a taxpayer’s Modified Adjusted Gross Income (MAGI) rises above a set threshold. Once MAGI exceeds the upper limit of the phase-out range, the benefit is completely eliminated.

Modified adjusted gross income (MAGI) is your adjusted gross income plus certain deductions i.e., IRA contributions, student loan interest, one-half of self-employment tax, qualified tuition expenses, nontaxable socialSecuritybenefits, passive income and losses, tax-exempt interest and foreign income exclusions and pre-2019 alimony income.

Modified adjusted gross income (MAGI) is your adjusted gross income plus certain deductions i.e., IRA contributions, student loan interest, one-half of self-employment tax, qualified tuition expenses, nontaxable socialSecuritybenefits, passive income and losses, tax-exempt interest and foreign income exclusions and pre-2019 alimony income.

EXPENSES THAT QUALIFY FOR AOC:

Tuition
Mandatory enrollment fees
Books
Course-related fees
Required course-related materials

EXPENSES THAT DO NOT QUALIFY FOR AOC:

Dormitory, off-campus housing, room & board
Meals
Travel to and from college campus
Athletic activity fees
Insurance

Most tuition and scholarship or grant monies received by an eligible educational institution will be reported on Form 1098-T. The credit is 100% of the first $2,000 of qualified expenses and 25% of the following $2,000 qualified expenses- maximum $2,500 credit per year per student. Any amount of tuition paid by scholarship, grants and fellowships that exceed qualified expenses is income which is taxable to the student, reported on Schedule 1, Form 1040.

Definitions

Form 1098-T (Tuition Statement): An IRS form issued by eligible educational institutions reporting the amount of qualified tuition and related expenses paid or billed during the tax year, along with any scholarships or grants received. Taxpayers use this form to determine their eligibility for education credits.

Lifetime learning credit

The lifetime Learning Credit provides a 20% qualified tuition expenses for taxpayers who do not qualify for the AOC. Up to $2,000 credit limit can be claimed by a taxpayer in a tax year. The credit applies to any number of years of higher education. For more information about both education credits, visit the IRS Education Credits page for the AOC and LLC.

General rules:

You must have earned income during the tax year in question.
You cannot claim the EIC if your status is married filing separately.
You, your spouse, and any qualifying children must all have valid Social Security Numbers.
Your 2025 investment income must be $3,650 or less.
To claim the EIC on your U.S. tax return, your home (and your spouse’s if filing a joint return) must have been in the United States for more than half the year. If you have a child and are interested in the child tax credit, the child must have lived with you in the United States for more than half the year. Special rules apply to ministers, clergy members, and military personnel stationed outside the United States; review the IRS military and clergy rules for the Earned Income Tax Credit for guidance.
Your earned income and adjusted gross income must be no more than between $75,000 to $150,000, depending on specifics.

Rules for taxpayers with children

Using a status other than Married Filing Separately. A special rule may apply for married individuals who live apart from their spouse for the last six months of the year.
Be a U.S. citizen or resident alien for the entire tax year. If you were a nonresident alien for any part of the year, you may still qualify if you are married to a U.S. citizen or resident and file a joint return.
Cannot file Form 2555: You cannot claim the EITC if you are also filing to exclude foreign earned income.
A qualifying child cannot be claimed for the EITC by more than one person.

Additional rules for taxpayers without children

If you do not have a qualifying child, you must meet all the general rules plus the following:

You must be at least 25 but under 65 at the end of the tax year.
Child cannot be claimed as a dependent or qualifying child on another person’s tax return.
The taxpayer must have lived in the United States for more than half the tax year. Unearned income does not count toward your earned income for the Earned Income Tax Credit (EITC), and if it is too high, it can disqualify you from receiving the credit entirely. The EITC is specifically designed to help low-to-moderate-income working individuals and families.

How unearned income affects the earned income credit

Sources of unearned income, such as unemployment compensation, interest, dividends, or Social Security, do not qualify for the credit.

Definitions

Earned Income: Wages, salaries, tips, and net earnings from self-employment. It does not include investment income, Social Security benefits, unemployment compensation, or other passive sources.
Unearned Income: Income derived from sources other than employment or self-employment, such as interest, dividends, capital gains, Social Security benefits, and unemployment compensation. Unearned income does not count toward EITC eligibility and may disqualify a taxpayer if it exceeds the annual threshold.

Next | Wrapping up

Education, business, and specialized tax credit

Education and Income Credits

Definitions

Postsecondary Education: Education pursued after high school, including programs at colleges, universities, vocational schools, and other accredited institutions. For AOC purposes, this refers to the first four years of undergraduate-level study at an eligible institution.
Eligible Educational Institution: Any accredited college, university, vocational school, or other postsecondary institution eligible to participate in federal student aid programs administered by the U.S. Department of Education.

Education credits

American Opportunity Credit

The American Opportunity Credit (AOC) is partially refundable and the Lifetime Learning Credit is nonrefundable.The credit applies to the first four years of postsecondary education at an eligible educational institution received by a taxpayer, a taxpayer’s spouse, and taxpayer’s dependents. The student must be at least half-time enrollment in either a certificate program, degree program, or to maintain or improve job skills.
The AOC offers a refundable portion of up to 40% of the total $2,500 credit, which equals $1,000 for eligible individuals. Taxpayers who have a zero tax liability can still receive the refundable portion of the credit.
The MAGI phase-out range for unmarried individuals is $80,000 to $90,000.
The MAGI phase-out range for married couples filing jointly is $160,000 to $180,000.
AOC is not available to taxpayers who use the married filing separately filing status.

Definitions

MAGI Phase-Out: A gradual reduction of a tax credit or deduction as a taxpayer’s Modified Adjusted Gross Income (MAGI) rises above a set threshold. Once MAGI exceeds the upper limit of the phase-out range, the benefit is completely eliminated.

Modified adjusted gross income (MAGI) is your adjusted gross income plus certain deductions i.e., IRA contributions, student loan interest, one-half of self-employment tax, qualified tuition expenses, nontaxable socialSecuritybenefits, passive income and losses, tax-exempt interest and foreign income exclusions and pre-2019 alimony income.

EXPENSES THAT QUALIFY FOR AOC:

Tuition
Mandatory enrollment fees
Books
Course-related fees
Required course-related materials

EXPENSES THAT DO NOT QUALIFY FOR AOC:

Dormitory, off-campus housing, room & board
Meals
Travel to and from college campus
Athletic activity fees
Insurance

Definitions

Form 1098-T (Tuition Statement): An IRS form issued by eligible educational institutions reporting the amount of qualified tuition and related expenses paid or billed during the tax year, along with any scholarships or grants received. Taxpayers use this form to determine their eligibility for education credits.

Lifetime learning credit

General rules:

You must have earned income during the tax year in question.
You cannot claim the EIC if your status is married filing separately.
You, your spouse, and any qualifying children must all have valid Social Security Numbers.
Your 2025 investment income must be $3,650 or less.
To claim the EIC on your U.S. tax return, your home (and your spouse’s if filing a joint return) must have been in the United States for more than half the year. If you have a child and are interested in the child tax credit, the child must have lived with you in the United States for more than half the year. Special rules apply to ministers, clergy members, and military personnel stationed outside the United States; review the IRS military and clergy rules for the Earned Income Tax Credit for guidance.
Your earned income and adjusted gross income must be no more than between $75,000 to $150,000, depending on specifics.

Rules for taxpayers with children

Using a status other than Married Filing Separately. A special rule may apply for married individuals who live apart from their spouse for the last six months of the year.
Be a U.S. citizen or resident alien for the entire tax year. If you were a nonresident alien for any part of the year, you may still qualify if you are married to a U.S. citizen or resident and file a joint return.
Cannot file Form 2555: You cannot claim the EITC if you are also filing to exclude foreign earned income.
A qualifying child cannot be claimed for the EITC by more than one person.

Additional rules for taxpayers without children

If you do not have a qualifying child, you must meet all the general rules plus the following:

You must be at least 25 but under 65 at the end of the tax year.
Child cannot be claimed as a dependent or qualifying child on another person’s tax return.
The taxpayer must have lived in the United States for more than half the tax year. Unearned income does not count toward your earned income for the Earned Income Tax Credit (EITC), and if it is too high, it can disqualify you from receiving the credit entirely. The EITC is specifically designed to help low-to-moderate-income working individuals and families.

How unearned income affects the earned income credit

Sources of unearned income, such as unemployment compensation, interest, dividends, or Social Security, do not qualify for the credit.

Definitions

Earned Income: Wages, salaries, tips, and net earnings from self-employment. It does not include investment income, Social Security benefits, unemployment compensation, or other passive sources.
Unearned Income: Income derived from sources other than employment or self-employment, such as interest, dividends, capital gains, Social Security benefits, and unemployment compensation. Unearned income does not count toward EITC eligibility and may disqualify a taxpayer if it exceeds the annual threshold.

Education and Income Credits

Definitions

Postsecondary Education: Education pursued after high school, including programs at colleges, universities, vocational schools, and other accredited institutions. For AOC purposes, this refers to the first four years of undergraduate-level study at an eligible institution.
Eligible Educational Institution: Any accredited college, university, vocational school, or other postsecondary institution eligible to participate in federal student aid programs administered by the U.S. Department of Education.

Education credits

American Opportunity Credit

The American Opportunity Credit (AOC) is partially refundable and the Lifetime Learning Credit is nonrefundable.The credit applies to the first four years of postsecondary education at an eligible educational institution received by a taxpayer, a taxpayer’s spouse, and taxpayer’s dependents. The student must be at least half-time enrollment in either a certificate program, degree program, or to maintain or improve job skills.
The AOC offers a refundable portion of up to 40% of the total $2,500 credit, which equals $1,000 for eligible individuals. Taxpayers who have a zero tax liability can still receive the refundable portion of the credit.
The MAGI phase-out range for unmarried individuals is $80,000 to $90,000.
The MAGI phase-out range for married couples filing jointly is $160,000 to $180,000.
AOC is not available to taxpayers who use the married filing separately filing status.

Definitions

MAGI Phase-Out: A gradual reduction of a tax credit or deduction as a taxpayer’s Modified Adjusted Gross Income (MAGI) rises above a set threshold. Once MAGI exceeds the upper limit of the phase-out range, the benefit is completely eliminated.

Modified adjusted gross income (MAGI) is your adjusted gross income plus certain deductions i.e., IRA contributions, student loan interest, one-half of self-employment tax, qualified tuition expenses, nontaxable socialSecuritybenefits, passive income and losses, tax-exempt interest and foreign income exclusions and pre-2019 alimony income.

EXPENSES THAT QUALIFY FOR AOC:

Tuition
Mandatory enrollment fees
Books
Course-related fees
Required course-related materials

EXPENSES THAT DO NOT QUALIFY FOR AOC:

Dormitory, off-campus housing, room & board
Meals
Travel to and from college campus
Athletic activity fees
Insurance

Definitions

Form 1098-T (Tuition Statement): An IRS form issued by eligible educational institutions reporting the amount of qualified tuition and related expenses paid or billed during the tax year, along with any scholarships or grants received. Taxpayers use this form to determine their eligibility for education credits.

Lifetime learning credit

General rules:

You must have earned income during the tax year in question.
You cannot claim the EIC if your status is married filing separately.
You, your spouse, and any qualifying children must all have valid Social Security Numbers.
Your 2025 investment income must be $3,650 or less.
To claim the EIC on your U.S. tax return, your home (and your spouse’s if filing a joint return) must have been in the United States for more than half the year. If you have a child and are interested in the child tax credit, the child must have lived with you in the United States for more than half the year. Special rules apply to ministers, clergy members, and military personnel stationed outside the United States; review the IRS military and clergy rules for the Earned Income Tax Credit for guidance.
Your earned income and adjusted gross income must be no more than between $75,000 to $150,000, depending on specifics.

Rules for taxpayers with children

Using a status other than Married Filing Separately. A special rule may apply for married individuals who live apart from their spouse for the last six months of the year.
Be a U.S. citizen or resident alien for the entire tax year. If you were a nonresident alien for any part of the year, you may still qualify if you are married to a U.S. citizen or resident and file a joint return.
Cannot file Form 2555: You cannot claim the EITC if you are also filing to exclude foreign earned income.
A qualifying child cannot be claimed for the EITC by more than one person.

Additional rules for taxpayers without children

If you do not have a qualifying child, you must meet all the general rules plus the following:

You must be at least 25 but under 65 at the end of the tax year.
Child cannot be claimed as a dependent or qualifying child on another person’s tax return.
The taxpayer must have lived in the United States for more than half the tax year. Unearned income does not count toward your earned income for the Earned Income Tax Credit (EITC), and if it is too high, it can disqualify you from receiving the credit entirely. The EITC is specifically designed to help low-to-moderate-income working individuals and families.

How unearned income affects the earned income credit

Sources of unearned income, such as unemployment compensation, interest, dividends, or Social Security, do not qualify for the credit.

Definitions

Earned Income: Wages, salaries, tips, and net earnings from self-employment. It does not include investment income, Social Security benefits, unemployment compensation, or other passive sources.
Unearned Income: Income derived from sources other than employment or self-employment, such as interest, dividends, capital gains, Social Security benefits, and unemployment compensation. Unearned income does not count toward EITC eligibility and may disqualify a taxpayer if it exceeds the annual threshold.