Kids off to college? Here's the tax help you might be missing.

# Kids off to college? Here's the tax help you might be missing.  > **Executive Summary for the Taxpayer.** For tax year 2026, federal education tax credits may be worth up to $2,500 per eligible student through the American Opportunity Tax Credit, or up to $2,000 per return through the Lifetime Learning Credit, subject to eligibility and income limits. New Jersey families may also qualify for College Affordability Act deductions, and Brick Taxes | 732-540-1040 can help sort through the rules. September means dorm drop-offs, bookstore runs, and tuition bills for parents of new and returning college students across New Jersey, New York, and Pennsylvania. Before you file, check whether your family can claim education tax credits or a tuition tax credit, and whether New Jersey offers a deduction for your situation. [IRS education credits](https://www.irs.gov/credits-deductions/individuals/education-credits-aotc-and-llc)  ## Federal education tax credits: AOTC first The **American Opportunity Tax Credit (AOTC)** can be worth up to **$2,500 per eligible student**. It is calculated as 100% of the first $2,000 in adjusted qualified expenses plus 25% of the next $2,000; up to 40% of the credit, or $1,000, may be refundable. [2026 Instructions for Form 8863](https://www.irs.gov/pub/irs-dft/i8863--dft.pdf) For 2026, the AOTC generally applies to a student who: - Has not completed the first four years of postsecondary education before the tax year and has not had the credit claimed for four prior tax years. - Is pursuing a degree or other recognized credential and enrolled at least half-time for at least one academic period. - Meets the other eligibility rules, including the eligible-institution and income requirements. [2026 Instructions for Form 8863](https://www.irs.gov/pub/irs-dft/i8863--dft.pdf) The 2026 modified adjusted gross income phase-out is **$80,000–$90,000** for single, head of household, or qualifying surviving spouse filers and **$160,000–$180,000** for married filing jointly. The credit is unavailable at or above the top of the applicable range. [2026 Instructions for Form 8863](https://www.irs.gov/pub/irs-dft/i8863--dft.pdf) ## The Lifetime Learning Credit and the one-credit rule The **Lifetime Learning Credit (LLC)** may be worth up to **$2,000 per tax return**, calculated as 20% of up to $10,000 in adjusted qualified expenses. It can apply for any year of postsecondary education, including eligible courses to acquire or improve job skills, and it does not require half-time enrollment or a degree program. The 2026 income phase-out is the same as the AOTC, and the LLC is nonrefundable. [IRS education credits](https://www.irs.gov/credits-deductions/individuals/education-credits-aotc-and-llc); [2026 Instructions for Form 8863](https://www.irs.gov/pub/irs-dft/i8863--dft.pdf) You may claim the AOTC and LLC on the same return for different students, but **not both for the same student in the same tax year**. [IRS education credits FAQ](https://www.irs.gov/faqs/childcare-credit-other-credits/education-credits/education-credits-1-8) One outdated benefit to cross off your search list: the federal tuition and fees deduction expired after tax year 2020. [IRS education credits](https://www.irs.gov/credits-deductions/individuals/education-credits-aotc-and-llc) ## 529 plans: useful, but mind the expenses There is no federal deduction for contributions to a 529 qualified tuition program. Earnings generally grow tax-free, and distributions used for qualified education expenses are generally tax-free; with a nonqualified distribution, the earnings portion is generally taxable and may be subject to an additional 10% tax. [IRS Topic No. 313](https://www.irs.gov/taxtopics/tc313) Keep the expense allocation straight: you cannot use the same expense both to claim an education credit and to justify tax-free 529 earnings. Review the rules and records before filing. [IRS Publication 970](https://www.irs.gov/forms-pubs/about-publication-970) ## Form 1098-T: a helpful starting point, not the whole story Form 1098-T reports tuition-related information from the school, including payments received in Box 1; Box 7 indicates that Box 1 includes amounts for an academic period beginning in the first three months of the following year. The form may not match what you paid or the total expenses that qualify, so check the bursar account and supporting records. [IRS About Form 1098-T](https://www.irs.gov/forms-pubs/about-form-1098-t); [2026 Instructions for Forms 1098-E and 1098-T](https://www.irs.gov/instructions/i1098et) Room and board are not qualified expenses for the federal education credits, and tax-free scholarships or grants reduce expenses available for a credit. Course materials may qualify for the AOTC even if bought outside the school, while LLC books and supplies generally qualify only when required to be paid directly to the institution. [2026 Instructions for Form 8863](https://www.irs.gov/pub/irs-dft/i8863--dft.pdf) Keep these documents together: 1. Form 1098-T and bursar account statements or receipts. 2. Student-loan disbursement records and proof of payments. 3. Receipts for books and required course materials. 4. Scholarship and grant details showing how the funds were applied.  ## New Jersey college tuition tax deduction and NJBEST benefits For tax year 2026, eligible taxpayers with **New Jersey gross income of $200,000 or less** may qualify for three New Jersey College Affordability Act deductions: - **NJBEST 529 contributions:** Deduct up to $10,000 of contributions made during the year. For married filing separately, the combined limit cannot exceed $10,000. - **NJCLASS loan payments:** Deduct up to $2,500 of principal and interest paid during the year. - **In-state tuition:** Deduct up to $10,000 for tuition costs when you, your spouse, or your dependent enrolls in or attends a New Jersey institution of higher education. [NJ Division of Taxation: College and Tuition Assistance](https://www.nj.gov/treasury/taxation/individuals/collegededuction.shtml) These are New Jersey gross-income deductions, not dollar-for-dollar tax credits. If NJBEST contributions were deducted and the account is later used for a nonqualified withdrawal, previously deducted contributions and earnings may become taxable under New Jersey rules. [NJ Division of Taxation: College and Tuition Assistance](https://www.nj.gov/treasury/taxation/individuals/collegededuction.shtml) The **NJBEST scholarship** is separate from the tax deductions. Eligibility generally requires an NJBEST account open for the student for at least four years, at least $1,200 in total contributions, a qualified withdrawal during the application semester, half-time enrollment at an eligible New Jersey institution, and New Jersey residency for either the student or contributor. The student applies through NJFAMS by **December 1 for fall** or **May 1 for spring**. [HESAA NJBEST Scholarship](https://www.hesaa.org/Pages/njbestscholarship.aspx) Lower-income New Jersey families may also want to review HESAA’s NJBEST Matching Program, which offers eligible households a one-time match of up to $750 on the first contribution to a new NJBEST account. [HESAA NJBEST Matching Program](https://www.hesaa.org/Pages/NJBESTMatchingProgram.aspx) Plainly stated: beyond the College Affordability Act deductions, New Jersey does not offer an additional state tuition credit or tuition deduction. [NJ Division of Taxation: College and Tuition Assistance](https://www.nj.gov/treasury/taxation/individuals/collegededuction.shtml) ## A quick illustration Suppose a family pays $12,000 in tuition for an eligible undergraduate student. If at least $4,000 of adjusted qualified expenses remain after scholarships and other tax-free assistance, the family might qualify for the full **$2,500 AOTC**, subject to student, income, and other rules. [2026 Instructions for Form 8863](https://www.irs.gov/pub/irs-dft/i8863--dft.pdf) If the student attends a New Jersey institution and the taxpayer meets the state’s income and other requirements, the family may also be able to deduct up to **$10,000 of in-state tuition** from New Jersey gross income. Eligible NJBEST contributions may qualify for a separate deduction, too. This is an illustration, not individual tax advice, and the same expense cannot be counted twice for federal tax benefits. [NJ Division of Taxation: College and Tuition Assistance](https://www.nj.gov/treasury/taxation/individuals/collegededuction.shtml); [IRS Publication 970](https://www.irs.gov/forms-pubs/about-publication-970) ## FAQs about education tax credits **Can both parents claim the AOTC?** For a student claimed as a dependent, the person claiming that dependent generally claims the education credit. Parents cannot split the same student’s credit between separate returns. [2026 Instructions for Form 8863](https://www.irs.gov/pub/irs-dft/i8863--dft.pdf) **My income is too high for the federal credit. Is there another option?** The LLC has the same federal income phase-out as the AOTC. New Jersey’s deductions use a separate New Jersey gross-income limit, and qualified 529 withdrawals may still receive federal tax-free treatment. [2026 Instructions for Form 8863](https://www.irs.gov/pub/irs-dft/i8863--dft.pdf); [NJ Division of Taxation: College and Tuition Assistance](https://www.nj.gov/treasury/taxation/individuals/collegededuction.shtml); [IRS Topic No. 313](https://www.irs.gov/taxtopics/tc313) **Can I claim the AOTC for my fifth-year student?** Generally, no, if the student has completed the first four years of postsecondary education or the AOTC has already been claimed for four tax years. The student may qualify for the LLC instead, if the other rules are met. [2026 Instructions for Form 8863](https://www.irs.gov/pub/irs-dft/i8863--dft.pdf) **Can I count room and board?** No, not as a qualified expense for the federal education credits, even if it is a major part of the college bill. [2026 Instructions for Form 8863](https://www.irs.gov/pub/irs-dft/i8863--dft.pdf) **What if my Form 1098-T is wrong or missing?** Contact the school to request a correction or missing form. In limited situations, a taxpayer may claim a credit without Form 1098-T if the institution is not required to issue one or the taxpayer follows the applicable request and documentation procedures. [IRS education credits](https://www.irs.gov/credits-deductions/individuals/education-credits-aotc-and-llc); [2026 Instructions for Form 8863](https://www.irs.gov/pub/irs-dft/i8863--dft.pdf) **Can I claim New Jersey’s tuition deduction if I live in Pennsylvania but pay tuition to a New Jersey school?** Generally, paying tuition to a New Jersey school alone does not qualify a Pennsylvania resident for the NJ resident deduction. Part-year residents should check whether the tuition was paid while they were New Jersey residents and review the applicable return rules. [NJ Division of Taxation: Exemptions and Deductions](https://www.nj.gov/treasury/taxation/njit13.shtml)  ## Get help with college tax benefits College expenses come with enough paperwork without guessing which forms, credits, and state rules apply. Brick Taxes can review your education documents, prepare your return, and help you understand which benefits may fit your circumstances. Call **Brick Taxes | 732-540-1040** or [book a conversation](https://calendly.com/bricktaxes/resolve). [Read our public Google reviews](https://www.google.com/maps/search/?api=1&query=Brick+Taxes+LLC+88+Queen+Ann+Rd+Brick+NJ). **More than 105 Five-Star Google Reviews & Counting.** This article is general information, not financial consulting and not financial or investment advice. Consult your own financial advisor about your circumstances; Brick Taxes has no referral arrangement. For tax preparation questions, contact **Brick Taxes | 732-540-1040**.