Calculating the American Opportunity Credit: Education Tax Benefits (2025 IRS Guide)

This guide covers “Calculating the American Opportunity Credit” within education tax benefits. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.

Adapted from Publication 970 (2025), Tax Benefits for Education, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.

Calculating the American Opportunity Credit

The amount of the American opportunity credit (per eligible student) is the sum of:

1. 100% of the first $2,000 of qualified education expenses you paid for the eligible student, and

2. 25% of the next $2,000 of qualified education expenses you paid for that student.

The maximum amount of American opportunity credit you can claim in 2025 is $2,500 multiplied by the number of eligible students. You can claim the full $2,500 for each eligible student for whom you paid at least $4,000 of adjusted qualified education expenses. However, the credit may be reduced based on your MAGI. See Effect of the Amount of Your Income on the Amount of Your Credit, later.

Example.

Jack and Kay are married and file a joint tax return. For 2025, they claim their dependent child on their tax return. Their MAGI is $70,000. Their child is in the junior (third) year of studies at the local university. Jack and Kay paid qualified education expenses of $4,300 in 2025.

Jack and Kay, their child, and the local university meet all of the requirements for the American opportunity credit. Jack and Kay can claim a $2,500 American opportunity credit in 2025. This is 100% of the first $2,000 of qualified education expenses, plus 25% of the next $2,000.

Form 1098-T.

To help you figure your American opportunity credit, the student may receive Form 1098-T. Generally, an eligible educational institution (such as a college or university) must send Form 1098-T (or acceptable substitute) to each enrolled student by February 2, 2026 (January 31 falls on a Saturday). An institution will report payments received (box 1) for qualified education expenses. However, the amount on Form 1098-T might be different from what you paid. When figuring the credit, use only the amounts you paid or are deemed to have paid in 2025 for qualified education expenses.

In addition, Form 1098-T should give other information for that institution, such as adjustments made for prior years, the amount of scholarships or grants, reimbursements or refunds, and whether the student was enrolled at least half-time or was a graduate student.

The eligible educational institution may ask for a completed Form W-9S, Request for Student’s or Borrower’s Taxpayer Identification Number and Certification, or similar statement to obtain the student’s name, address, and TIN.

.To claim the American opportunity credit, you must provide the educational institution’s EIN on your Form 8863. You should be able to obtain this information from Form 1098-T or the educational institution..

Effect of the Amount of Your Income on the Amount of Your Credit

The amount of your American opportunity credit is phased out (gradually reduced) if your MAGI is between $80,000 and $90,000 ($160,000 and $180,000 if you file a joint return). You can’t claim an American opportunity credit if your MAGI is $90,000 or more ($180,000 or more if you file a joint return).

Modified adjusted gross income (MAGI).

For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return.

MAGI when using Form 1040 or 1040-SR.

If you file Form 1040 or 1040-SR, your MAGI is the AGI on line 11a of that form, modified by adding back any:

1. Foreign earned income exclusion,

2. Foreign housing exclusion,

3. Foreign housing deduction,

4. Exclusion of income by bona fide residents of American Samoa, and

5. Exclusion of income by bona fide residents of Puerto Rico.

You can use Worksheet 2-1 to figure your MAGI.

Worksheet 2-1. MAGI for the American Opportunity Credit

Phaseout.

If your MAGI is within the range of incomes where the credit must be reduced, you will figure your reduced credit using lines 2–7 of Form 8863. The same method is shown in the following example.

Example.

You are filing a joint return and your MAGI is $165,000. In 2025, you paid $5,000 of qualified education expenses.

You figure a tentative American opportunity credit of $2,500 (100% of the first $2,000 of qualified education expenses, plus 25% of the next $2,000 of qualified education expenses).

Because your MAGI is within the range of incomes where the credit must be reduced, you must multiply your tentative credit ($2,500) by a fraction. The numerator (top part) of the fraction is $180,000 (the upper limit for those filing a joint return) minus your MAGI. The denominator (bottom part) is $20,000, the range of incomes for the phaseout ($160,000 to $180,000). The result is the amount of your phased out (reduced) American opportunity credit ($1,875).

Refundable Part of Credit

Forty percent of the American opportunity credit is refundable for most taxpayers. However, if you were under age 24 at the end of 2025 and the conditions listed below apply to you, you can’t claim any part of the American opportunity credit as a refundable credit on your tax return. Instead, your allowed credit (figured on Form 8863, Part II) will be used to reduce your tax as a nonrefundable credit only.

You don’t qualify for a refund if items 1 (a, b, or c), 2, and 3 below apply to you.

1. You were:

   1. Under age 18 at the end of 2025, or

   2. Age 18 at the end of 2025 and your earned income (defined below) was less than one-half of your support (defined below), or

   3. Over age 18 and under age 24 at the end of 2025 and a full-time student (defined below) and your earned income (defined below) was less than one-half of your support (defined below).

2. At least one of your parents was alive at the end of 2025.

3. You are filing a return as single, head of household, qualifying surviving spouse, or married filing separately for 2025.

Earned income.

Earned income includes wages, salaries, professional fees, and other payments received for personal services actually performed. Earned income includes the part of any scholarship or fellowship grant that represents payment for teaching, research, or other services performed by the student that are required as a condition for receiving the scholarship or fellowship grant. Earned income doesn’t include that part of the compensation for personal services rendered to a corporation that represents a distribution of earnings or profits rather than a reasonable allowance as compensation for the personal services actually rendered.

If you are a sole proprietor or a partner in a trade or business in which both personal services and capital are material income-producing factors, earned income also includes a reasonable allowance for compensation for personal services, but not more than 30% of your share of the net profits from that trade or business (after subtracting the deduction for one-half of self-employment tax). However, if capital isn’t an income-producing factor and your personal services produced the business income, the 30% limit doesn’t apply.

Support.

Your support includes food, shelter, clothing, medical and dental care, education, and the like. Generally, the amount of the item of support will be the amount of expenses incurred by the one furnishing such item. If the item of support is in the form of property or lodging, measure the amount of such item of support by its fair market value. However, a scholarship received by you isn’t considered support if you are a full-time student. See Pub. 501 for details.

Full-time student.

You are a full-time student for 2025 if during any part of any 5 calendar months during the year you were enrolled as a full-time student at an eligible educational institution (defined earlier), or took a full-time, on-farm training course given by such an institution or by a state, county, or local government agency.

Using the guidance

Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.

Sources and further reading

• Publication 970 (2025), Tax Benefits for Education: American Opportunity Credit — Figuring the Credit — Internal Revenue Service; 2025 edition.

The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.