Once known as the , the can save taxpayers up to $2,500 on their 2016 return.

Remember: A tax credit is a dollar-for-dollar reduction of your taxable income. In theory, the translates to $2,500 from the government each year for each qualifying in your household.

While the previous credit – the Hope College Credit – was only available during the first two years of college, the AOTC is an option for taxpayers during all four years of post-secondary education. To receive the maximum credit amount, you’ll have to spend at least $4,000 in qualifying expenses. Currently, book fees, tuition, and other enrollment costs are considered qualified expenses.

High and Low Income Effects

Low-income taxpayers are happy to learn that up to 40% of the credit (around $1,000) is refundable should the credit be worth more than your tax liability. This is different form the former credit, which could reduce your tax bill to zero, but offered no refund.

Higher-income earners benefit from the expansion of families who meet the qualifications for the credit. Previously, the phased out at AGI over $50,000 for single taxpayers, and was eliminated completely at $60,000. For joint filers, the phase-out ranged between $100,000 and $120,000 AGI.

The new rules expanded the phase-out limits to $80,000 and $160,000 AGI for single and joint filers respectively. The credit is now eliminated at $90,000 and $180,000.

If you claimed the Hope Credit for your student’s first two years of college, you can still use the AOTC if the student is currently a junior or senior in 2016.

Qualifications

To qualify for the credit, students must be enrolled at least half-time while pursuing an undergraduate degree or other recognized credential. The credit can be used for expenses paid by you, your spouse, or your dependent child. Even if the student pays the expense, if they are listed as a dependent on your tax return, you will get the credit.

Available to those enrolled in graduate school or any other post-secondary class, the Lifetime Learning Credit is worth up to $2,000. The credit is 20% of the first $10,000 of expenses. The income limits are lower than the AOTC, however.

For 2016:

Single taxpayers experience phase-out between $55,000 and $65,000 AGI

Joint filers experience phase-out between $110,000 and $130,000 AGI