What this line means
The nonrefundable education credits after applying income phase-outs and the tax liability limitation. This is the smaller of two numbers: the tentative credit after phase-outs (line 17) or your tax liability minus certain other credits (the limitation calculated in lines 10-18). 1 These credits reduce your tax but cannot push it below zero. They do not generate a refund on their own. This amount flows to Schedule 3, line 2.
Does this apply to you?
- You have a tentative education credit on line 9 and your income is within the phase-out range
- Your tax liability is large enough to absorb some or all of the nonrefundable credit
- You owe federal income tax before applying education credits
Easy to overlook
Your tax liability caps the nonrefundable credit — unused amounts vanish If your tentative credit after phase-outs is $1,500 but your tax liability (after other credits) is only $800, you get $800 on this line. The remaining $700 disappears — it does not carry forward and it does not become refundable. This is why the 40% refundable portion of the AOTC on line 4 is so valuable for low-income filers. 2 General filing pattern — education credit limited by tax liability
Other nonrefundable credits reduce the cap for education credits The tax liability limitation on this line accounts for credits already claimed on Schedule 3. The child tax credit, foreign tax credit, and other nonrefundable credits reduce the available tax liability before education credits apply. If those credits already wiped out your tax, this line is zero. 3 IRS Form 8863 instructions — Line 18
Watch out for this
Filers with low tax liability often assume they get the full education credit. They do not. The nonrefundable portion is capped at your remaining tax after other credits. If you are in this situation, make sure you claimed the refundable AOTC on line 4 — that 40% refundable portion is not subject to the tax liability cap. Also, the Lifetime Learning Credit is entirely nonrefundable, so low-income filers claiming only the LLC lose any credit that exceeds their tax.
Footnotes
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IRS Form 8863 Instructions, Part II, Lines 10-18. https://www.irs.gov/instructions/i8863 ↩
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IRS Publication 970, Tax Benefits for Education, Nonrefundable Credits. https://www.irs.gov/pub/irs-pdf/p970.pdf ↩
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IRS Form 8863 Instructions, Tax Liability Limitation. https://www.irs.gov/instructions/i8863 ↩