Instructions for Form 8863 Checklist — Tax Year 2018
Form 8863 allows taxpayers to claim federal education tax credits for qualified education
expenses paid during the 2018 tax year. This IRS form calculates two distinct credits: the
American Opportunity Credit and the Lifetime Learning Credit.
Understanding Education Credits and Form 8863
The American Opportunity Credit offers up to $2,500 per eligible student for the first four years of post-high school coursework. Students must enroll at least half-time in a degree program at an eligible educational institution.
This credit equals 100% of the first $2,000 in qualified expenses plus 25% of the next $2,000.
Up to 40% of the credit becomes refundable, meaning you can receive a tax refund even if you owe no federal taxes.
The Lifetime Learning Credit is available for up to $2,000 per tax return, irrespective of the number of students. For undergraduate, graduate, or job skills courses, this nonrefundable credit provides coverage for 20% of qualified education expenses, up to $10,000 per year.
Eligibility Requirements for the American Opportunity
Credit
Students must meet specific criteria to qualify for the American Opportunity Credit on their 2018
tax return
- To qualify, the enrolled individual must be a U.S. citizen, national, or resident alien who is
pursuing a degree or other recognized educational credential.
- Eligibility is denied if the individual completed the first four years of postsecondary
education before 2018.
- Prior usage of the American Opportunity Credit or the Hope Scholarship Credit for more
than three tax years disqualifies the student from claiming the credit again.
- A felony drug conviction in effect at the end of the tax year disqualifies the student,
consistent with the statutory rule established when the credit was created in 2009.
Eligible educational institutions include accredited public, nonprofit, or proprietary colleges, universities, vocational schools, and other postsecondary institutions that participate in student aid programs. You must provide the educational institution’s employer identification number on
Form 8863 when claiming the credit.
Modified Adjusted Gross Income Phase-Out Thresholds
Your modified adjusted gross income determines your eligibility for education credits. The
American Opportunity Credit begins phasing out at $80,000 for single filers and completely phases out at $90,000.
For married couples filing jointly, the phase-out range spans $160,000 to $180,000. These thresholds remained unchanged from prior years and were not affected by the Tax Cuts and
Jobs Act.
Calculate modified adjusted gross income by starting with Form 1040, line 7, then adding back foreign earned income exclusion and excluded Puerto Rico income. The Lifetime Learning
Credit has different limits: $57,000 to $67,000 for single filers and $114,000 to $134,000 for joint filers.
Qualified Education Expenses and Required
Documentation
Qualified education expenses for the American Opportunity Credit include tuition, required enrollment fees, and course materials such as books, supplies, and equipment. You can count these course materials whether or not you purchased them from the educational institution as a condition of enrollment.
The Lifetime Learning Credit covers tuition and required fees, but only includes books and supplies if the institution requires direct purchase. Room, board, insurance, transportation, and other personal expenses never qualify for either credit. Form 1098-T reports payments received or billed amounts from eligible educational institutions.
Your educational institution typically provides this tuition statement through Student Account
Services by January 31 following the tax year. Box 1 shows payments received for qualified tuition and related expenses, while Box 2 shows amounts billed.
Reducing Expenses for Scholarships and Financial Aid
Tax-free educational assistance reduces your qualified education expenses dollar-for-dollar before calculating education credits. This includes Pell grants, scholarships, fellowships, employer-provided educational assistance, and veterans’ benefits.
You must subtract these amounts from total qualified expenses to determine adjusted qualified education expenses. Student loans do not reduce qualified expenses because you must repay borrowed funds.
Amounts paid from 529 plans or distributed from Coverdell Education Savings Accounts affect qualified expenses only if those distributions remain tax-free. Careful coordination between education credits and tax-advantaged savings accounts maximizes your total tax benefits.
Step-by-Step Guide to Completing Form 8863
Step 1: Complete Part III for Each Student
Enter the student’s name and Social Security number exactly as shown on your Form 1040.
Provide complete information about each educational institution attended, including the institution’s employer identification number for any student claiming the American Opportunity
Credit.
Step 2: Answer Eligibility Questions
Respond to all questions regarding the Form 1098-T receipt, prior credit claims, enrollment status, and felony drug convictions. Mark whether the student completed the first four years of postsecondary education before 2018. Calculate qualified expenses for each student separately before combining totals.
Step 3: Calculate the Refundable American Opportunity Credit
Complete Part I of Form 8863 to determine the refundable portion of the American Opportunity
Credit. Enter the total from all Part III, line 30 calculations on line 1.
Apply income phase-out calculations based on your modified adjusted gross income. Line 8 shows your refundable credit amount, which transfers to Form 1040, line 17c.
- Full IRS transcript retrieval (Wage & Income + Account)
- Professional tax form review
- Preparation & filing support
- Tax relief options if you owe the IRS
Step 4: Calculate Nonrefundable Education Credits
Complete Part II to determine nonrefundable education credits, including the remaining
American Opportunity Credit and the Lifetime Learning Credit. Enter the amount from line 9 on
Schedule 3 (Form 1040), line 50. Use the Credit Limit Worksheet in IRS Publication 970 to properly allocate credits based on your tax liability.
Filing Requirements and Recordkeeping
Attach Form 8863 to your Form 1040 when filing your 2018 tax return by April 15, 2019, or your extended due date. Keep copies of Form 1098-T, tuition payment receipts, student loan documents, scholarship award letters, and financial aid statements with your tax records.
The Internal Revenue Service may request documentation to verify qualified education expenses and student eligibility. Maintain organized records showing payment amounts, payment methods, dates of coverage, and institution information for each student.
IRS Publication 970 provides comprehensive guidance on education tax benefits and detailed examples for complex situations. The form structure separates refundable and nonrefundable portions using the same framework established when the credit was created. Review all requirements carefully to ensure accurate reporting and maximize available education tax credits on your federal taxes.
If you’re missing tax documents or want to ensure the numbers you enter match IRS records, we can help.
