If you are eligible to claim an education credit on your tax return, it could reduce the amount of tax that you owe by up to $2,500 per tax return.  The two education credits that are available are the American Opportunity Credit and the Lifetime Learning Credit.

When you help a student pay for qualified education expenses, there is a lot of confusion regarding who is eligible to claim the education credit.  Although the IRS rules can be a little complicated, the answer is relatively straightforward as long as you follow these two rules:

  • The IRS only allows you to claim the education credit if the student is being claimed as a dependent on your tax return. Therefore, if the student is being claimed as a dependent on the parent’s tax return, then the parents are the only ones eligible for the education credit.  This is true regardless of who actually paid the expenses.
  • If the student is not being claimed as a dependent on someone else’s tax return, then the student is the only one eligible for the education credit. This is true regardless of who actually paid the expenses.

If a relative or friend pays for the student’s qualified education expenses, the only time the relative or friend would be eligible to claim the education credit on his or her own tax return would be if the relative or friend is claiming the student as a dependent.

Example 1: Grandparents paid the student’s education expenses, and the student is being claimed as a dependent on the parent’s tax return.

The parents are the only ones eligible for the education credit.  Even if the grandparents paid the student’s expenses directly to the school, the IRS treats the grandparents as making a gift to the parents and then the parents paying the tuition.

  • The grandparents are not eligible to claim the education credit because they are not claiming the student as a dependent on their tax return.
  • The student is not eligible to claim the education credit because the student is being claimed as a dependent on someone else’s tax return.

Example 2: Parents paid the student’s college tuition, and the student is not being claimed as a dependent on anyone’s tax return. 

The student is eligible for the education credit on his or her tax return (as if the student paid his or her own tuition).  The parents are not eligible to claim the education credit because they are not claiming the student as a dependent on their tax return.

To learn more about the American Opportunity Credit and Lifetime Learning Credit, please refer to this resource or consult a tax professional.