Back to School: Changes to Education Tax Credits You Should Know Heading into the New School Year

The One Big Beautiful Bill Act (OBBBA) has made sweeping changes to the U.S. tax code, including long-awaited updates to two key education credits: The American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). These changes are set to benefit a broader range of learners, but they also raise important questions for dual citizens and non-residents. Here are the changes taxpayers should know when strategizing for the upcoming school year. 

Changes to the American Opportunity Tax Credit (AOTC) 

The AOTC continues to be a favorite among undergraduate students and their families. It offers a maximum annual credit of $2,500 per eligible student and is partially refundable. The OBBBA made the following changes.  

• Expanded to five years.  – Previously, the AOTC was limited to the first four years of post-secondary education. The OBBBA increased the eligibility window to five years, benefiting students who may take longer to complete a degree due to caregiving, work, or financial constraints.  

• Increase in Refund Amount  – The refundable portion of the credit has been increased from $1,000 to $1,500. This means that if the credit brings the amount of tax owed to zero, 40% of the remaining amount up to $1,500 will be refunded to the taxpayer. For filers who owe zero tax, this would increase their overall tax refund.  

• Income Threshold Expanded – The phaseout range has been increased from $80,000 to $100,000 for single filers, and from $160,000 to $200,000 for joint filers.  This will impact more middle-income tax filers by making more people eligible for the full amount and increasing the percentage of the credit for higher income earners.  

The AOTC was created to help alleviate some of the financial burden of the cost of post-secondary education and encourage more people to seek higher education. These updates make the tax credit accessible to more people for a longer period of time.  

Changes to the Lifetime Learning Credit (LLC) 

The Lifetime Learning Credit was established to assist graduate students and other adult learners with the price of learning by offering a credit of 20% of the cost of qualified expenses up to $10,000. The OBBBA expands the LLC in a few key ways. 

• Maximum Credit Increase  – The LLC is now worth up to $3,000 per tax return, increased from the previous $2,000 cap. With this increase, more tuition and qualified expenses can be covered.  

• Eligible Expenses Expanded – The definition of qualified expenses now includes online learning platforms, credentialing fees, and continuing education for professional licenses. This expansion will benefit more taxpayers who want to further their education and their careers. It has modernized the LLC to reflect the evolving nature of education in the digital age.  

• Income Threshold Expanded – Like the AOTC, the phaseout range was also increased. Now, the phaseout range is $90,000-$140,000 for single filers and $180,000-$280,000 for joint filers, allowing more working professionals to benefit from the LLC. 

The adjustments made to the Lifetime Learning Credit will benefit those who want to pursue continuing education to stay competitive in their field and earn degrees beyond the first four years of college.   

Change in Social Security Number Requirement 

Beginning in 2026, to claim AOTC and LLC credits, taxpayers must have a valid social security number (SSN) rather than a taxpayer identification number (TIN).  If the credit is claimed for tuition and related expenses of an individual other than the taxpayer or spouse, the taxpayer must also provide that individual’s name and SSN.  

How These Changes May Impact Dual Citizens and Non-Residents 

U.S. Citizens living abroad and Dual Citizens meeting the eligibility requirements can claim the AOTC and LLC on their annual U.S. tax returns.  Dual Citizens should keep these and other tax credits in mind when considering whether to apply for social security numbers for their children.  It could result in higher tax refunds if the individual has little to no U.S. tax obligation, especially when claiming Foreign Tax Credits or the Foreign Earned Income Exclusion, and he or she has children who attend colleges or universities in the U.S.  Please note that to qualify for either credit, the student must be enrolled at an eligible educational institution in the U.S. or a foreign educational institution that is recognized by the U.S. Department of Education and eligible to participate in U.S. federal student aid programs.   

The OBBBA’s updates to education credits reflect a modern view of learning. These changes make education more financially attainable for some taxpayers, especially for parents supporting college students, professionals pursuing a certification, or those returning to school later in life. However, many families and adult learners who do not have valid social security numbers will lose out on these benefits. Taxpayers should keep these credits in mind if they want to save money when planning for the future of their children or for themselves.