Continuing Education Tax Benefits: A Guide for Expats

Did you know you and your dependents can expand your knowledge and gain job skills while reducing your tax bill? The IRS offers a couple of different continuing education tax benefits, which can help offset higher education expenses by decreasing your tax burden. In many cases, even Americans attending an educational institution abroad are eligible to claim them.

But which credits are available, who qualifies for them, and how can you claim them? We’ll answer all of those questions and more below.

Understanding continuing education tax benefits

The two major continuing education tax benefits are the:

American Opportunity Tax Credit (AOTC)

The AOTC gives eligible students credits for qualified educational expenses in their first four years of higher education. Students can receive a maximum of $2,500 each through the AOTC: 100% of the first $2,000 in qualifying educational expenses, and 25% for the next $2,000. 

The AOTC is also partially refundable, meaning that even if it decreases your tax liability to zero, you can still receive money back in the form of a refund. After erasing your tax liability, the government will refund 40% of any remaining amount up to $1,000.

Lifetime Learning Credit (LLC)

The LLC is another tax break that can give you credits for continuing education. Unlike the AOTC, it does not have a time limit. Taxpayers can claim the LLC each year for a 20% credit on the first $10,000 spent on qualified educational expenses (up to $2,000).

Unfortunately, the LLC is non-refundable — meaning you can apply it to reduce your tax bill, but you won’t receive a refund for any amount exceeding your tax due to the IRS

Eligibility requirements

To qualify for one of the above credits, you must meet all three of the following criteria:

• The eligible student is you, your spouse, or one of your dependents
• The eligible student is enrolled at an eligible educational institution
• You, your dependent, or a third party pays qualified education expenses for higher education

The amount you can claim is dependent on your modified adjusted gross income (MAGI): 

	Full Credit	Partial Credit	Ineligible
Individual filer	$80,000 or less	Between $80,000 & $90,000	$90,000+
Married filing jointly	$160,000 or less	Between $160,000 & $180,000	$180,000+

Keep in mind that the AOTC and LLC each have slightly different educational requirements.

AOTC Eligibility

To qualify for the AOTC, students must meet all of the following criteria:

• Be pursuing a degree or other recognized education credential (e.g. certification, vocational degree)
• Be enrolled at least half-time for at least one academic period (semester, trimester, quarter, etc.) beginning in the tax year
• Not have already finished the first four years of higher education at the beginning of the tax year
• Not have already claimed the AOTC or the former Hope credit for more than four tax years
• Not have a felony drug conviction at the end of the tax year

LLC eligibility requirements

To qualify for the LLC, students must meet all of the following criteria:

• Be taking a higher education course or courses to get a degree or other recognized education credential, or to get or improve job skills
• Be enrolled or taking courses at an eligible educational institution
• Be enrolled for at least one academic period beginning in the tax year

Qualified education expenses

So, what exactly qualifies as a qualifying educational expense? Generally, you can earn AOTC and LLC credits for:

• Tuition
• Fees
• Books
• Supplies & equipment
• Other expenses required for enrollment or attendance

A few expenses that don’t qualify for the AOTC include:

• Room & board
• Insurance
• Medical expenses (including student health fees)
• Transportation
• Personal, living, or family expenses (e.g. a student meal plan)

Expenses related to sports, games, hobbies, and non-credit courses do not qualify for deduction unless they are part of your degree program. 

If you’re a kinesiology major taking a basketball course that satisfies your program requirements, for example, the tuition would likely be AOTC eligible. A computer science major, on the other hand, likely couldn’t claim AOTC credits for an elective basketball course.

B!T note: You cannot claim the AOTC for education expenses already paid for with tax-free funds like grants, scholarships, and fellowships.

How to claim educational tax credits

Claiming the Lifetime Learning Credit or American Opportunity Tax Credit requires you to keep detailed records of your educational expenses.

Those who have received a Form 1098-T (Tuition Statement) from their educational institution can use it to help calculate the credit they can claim. Box 1 will show how much you paid in tuition and fees, which will figure into your total credit. You can also factor in qualifying expenses made outside of your educational institution (e.g. a campus bookstore).

To claim either of the credits, you must file Form 8863 and include the relevant credit information on your main tax return form (usually Form 1040). Typically, the AOTC will go on Form 1040, line 29, while other nonrefundable education credits will go on Form 1040, line 3.

Special considerations for expats

When claiming continuing education tax credits, there are a few considerations that expats should keep in mind:

Foreign educational institutions

Unfortunately, not all foreign educational institutions are eligible for continuing education tax credits. A general rule of thumb is that if the institution participates in the US Federal Student Aid program, it is considered eligible for these credits. You can check whether yours is eligible by searching:

• The US Department of Education’s Database of Postsecondary Institutions and Programs, or
• The list of International Schools Participating in the Federal Student Loan Programs

Foreign educational institutions often will not provide a Form 1098-T. However, this doesn’t necessarily mean you can’t claim the AOTC or LLC for your tuition and expenses. You may still be able to claim educational tax credits for the tuition/fees you’ve paid to an eligible foreign educational institution by providing substantiating proof of payment.

Currency conversion

When claiming the AOTC or LLC for foreign educational expenses, you must always convert the currency into US dollars using a reliable calculator. Wise has a great conversion calculator that lets you convert different currencies into US dollars by date.

Interaction with other expat tax benefits

Living abroad comes with a few specific tax benefits, such as the:

• Foreign Earned Income Exclusion (FEIE): Allows expats to exclude a portion of their foreign-earned income from taxation — $120,000 for 2023, or $126,500 for 2024
• Foreign Tax Credit (FTC): Gives expats dollar-for-dollar tax credits for any foreign income taxes they’ve paid
• Foreign Housing Exclusion (FHE): Helps expats offset the cost of living abroad by allowing them to exclude qualifying housing expenses from their income

Maximizing the value of educational tax breaks

So, how can you make the most of the AOTC and LLC? Here are a few ideas:

Choose the right credit

You can claim both the AOTC and LLC on the same tax return, but not for the same student or the same expenses. In light of this, you may need to choose which option is right for you. 

The AOTC has a higher limit and is partially refundable, making it potentially more valuable for those who qualify. Those who don’t, however — such as those who are enrolled less than half-time or those who are more than four years into their higher education — are better off claiming the LLC.

Timing educational expenses

Being mindful about when you make educational expenses can help you get more value out of the AOTC and LLC. 

For example, you might hold off on certain expenses until the following tax year once you’ve hit the AOTC/LLC limit. Let’s say you want to buy a new laptop in September but have already met the $2,500 AOTC. If your laptop is still in relatively good shape, you may want to wait until January to make your purchase since your expenses will “reset” with the new tax year.

Or if you expect your income to increase in future years, you may want to invest in educational expenses now. Let’s say you’re a software engineer earning $70,000 per year who’s on track for a promotion with a $20,000 raise next year. If you’ve been wanting to take an SQL course, you should do so this year rather than next, when income limits prohibit you from claiming the LLC.

Other ways to leverage timing to maximize your AOTC/LLC benefits could include:

• Spending enough in qualifying educational expenses in one year to max out the tax break
• Waiting to take a higher education course until a year when you won’t be claiming the FEIE

Coordinating with other tax strategies

Continuing education tax credits are just one of many different strategies you can use to minimize your tax burden. Besides the aforementioned FEIE, FTC, and FHE, you might also consider:

• Claiming the benefits of a tax treaty, which tend to be especially beneficial for students
• Increasing your retirement contributions
• Deferring foreign income
• Engaging in tax-loss harvesting

Before taking advantage of a certain tax strategy, though, it’s important to speak with a tax professional to confirm it’s the right move.

Resources:

1. American Opportunity Tax Credit
2. Lifetime Learning Credit
3. Education credits – AOTC and LLC
4. What is an eligible educational institution?
5. What You Need to Know about AOTC and LLC
6. Is continuing medical education tax deductible? Navigating CME credits amid tax season
7. Topic no. 458, Educator expense deduction