2026 IRS Rule Change: Protect Your Education Tax Credits

Tuition costs remain high, but a new documentation rule for 2026 could disqualify eligible families claiming the American Opportunity Tax Credit (AOTC) or Lifetime Learning Credit (LLC) before the IRS reviews their numbers. Changes to eligibility rules mean missing key details could cost you the entire credit.

Here is what changed, what remained the same, and how to protect your claim.

What Actually Changed for 2026

The July 2025 One Big Beautiful Bill Act (OBBBA) kept credit amounts unchanged but updated identification requirements starting in the 2026 tax year:

• Taxpayers and students must have a valid Social Security number issued by the return’s due date; ITINs are no longer accepted.
• AOTC claims must include the school’s Employer Identification Number (EIN) from Form 1098-T on Form 8863.
• Missing SSNs or EINs are treated as mathematical errors, allowing the IRS to deny claims automatically without an audit.

Consequently, mixed-status households with ITINs can no longer claim these credits for affected students. U.S. citizens abroad may also need to obtain SSNs for their children to remain eligible.

If your return involves an ITIN, consult us prior to filing.

The Credits Refreshed

With valid SSN and EIN documentation, the core credits remain unchanged.

American Opportunity Tax Credit

• Up to $2,500 per eligible student, with 40% (up to $1,000) refundable.
• Limited to a student’s first four years of postsecondary degree or credential education.
• Covers tuition, fees, and required course materials from any seller.

Lifetime Learning Credit

• Up to $2,000 per return annually, regardless of qualifying dependents.
• No year limit or degree requirement; covers job skill courses.
• Covers institutional tuition and fees, excluding external materials.

Credits cannot be combined for the same student in one year, nor double-dipped with other benefits.

Income Limits Haven’t Moved

The credits still phase out at the same thresholds:

	AOTC	LLC
Maximum benefit	$2,500 per student	$2,000 per return
Refundable portion	Up to $1,000 (40%)	None
Phase-out begins (single)	$80,000 MAGI	$80,000 MAGI
Fully phased out (single)	$90,000 MAGI	$90,000 MAGI
Phase-out begins (MFJ)	$160,000 MAGI	$160,000 MAGI
Fully phased out (MFJ)	$180,000 MAGI	$180,000 MAGI
Years available	First 4 years only	Unlimited
Degree required	Yes	No
SSN required (2026+)	Filer and student	Filer and student
School EIN required	Yes	No

Two More 2026 Education Benefit Changes

While AOTC and LLC amounts remained steady, OBBBA expanded two related benefits:

• 529 plans got more flexible. Annual tax-free K-12 withdrawals doubled to $20,000, and eligible expenses now include post-secondary credentialing programs.
• Permanent employer student loan repayment exclusion. Employers can permanently exclude up to $5,250 (inflation-indexed) of student loan payments per employee from taxable income.

Before You File

To avoid automatic IRS denial, ensure you have your Form 1098-T, valid SSNs, and receipts for outside course materials ready before filing. Contact Smith Patrick today for professional assistance to ensure your return is handled correctly.

More Information

Questions about how these changes apply to your family’s return? Contact us to talk through your specific situation.

For the IRS’s own side-by-side breakdown, visit the Compare Education Credits tool or the Education Credits information center.