If you are a parent or student helping to pay for college, you could be asking who qualifies for the American Opportunity Tax Credit. This useful tax benefit can lighten the load of school-related expenses, including tuition. Also, you should be aware of the eligibility criteria before you assert it.
This post will walk you through who qualifies for the American Opportunity Tax Credit, what the credit covers, and the application rules. This article will assist you in determining whether you qualify, whether you support a first-time college student or are one yourself.
The American Opportunity Tax Credit (AOTC) is a federal tax credit designed to help students and their families pay for postsecondary education.
It lets you lower your income tax due, and occasionally, you might even get a refund.
The AOTC pays for approved educational costs, including course materials, tuition, and fees. Every qualified student can earn a maximum annual credit of $2,500; up to forty percent of the credit ($1,000) is refundable. You could get money back even if you do not owe taxes.
Who qualifies for the American Opportunity Tax Credit?
One should consider a few important criteria to ascertain who qualifies for the American Opportunity Tax Credit. These cover the kind of educational program, income restrictions, and student enrollment situation. The principal eligibility criteria are broken out here:
1. Attaching to a Qualified Institution
During the tax year, the student must be registered at least half-time for at least one academic term. The institution must be a qualified postsecondary school—that is, a college, university, or vocational school approved by the U.S. Department of Education.
2. Seeking a degree or credential
The student should be striving toward a degree or another accepted educational certification. This could call for a bachelor’s degree, an associate’s degree, or a certificate in a given trade or line of work.
3. First Four Years of Post-Secondary Learning
Students in their first four years of higher study alone are eligible. The AOTC does not apply to the student if they have previously finished four academic years of college.
4. No Felonies Regarding Drugs
Students guilty of a felony drug conviction are not qualified for the AOTC.
5. Appropriate Learning Costs
The credit just covers eligible education expenses. These cover books and supplies linked to courses, enrollment fees, and tuition. Not qualifying are room and board, transportation, and medical bills.
6. Income Criteria
Your modified adjusted gross income (MAGI) must be below to get the full credit:
- For single filers, $80,000 or less.
- For married couples registering jointly, $160,000 or less
The credit disappears for incomes between:
- For single filers, $80,000 and $90,000
- Married filing jointly, $160,000 and $180,000
- You are not qualified for the credit if your income is higher than these restrictions.
Can Parents Claim Their Children’s AOTC?
Indeed! As long as the student qualifies, parents can claim the American Opportunity Tax Credit on behalf of their dependent children. Only one taxpayer, though, can claim the credit annually, per student.
Should your child not be designated as your dependent on your tax return, they could be qualified to claim the credit on their return, should all other criteria be met.
Claiming the American Opportunity Tax Credit: How-to
To claim the AOTC, you will:
- Also, you can get Form 1098-T straight from the university. This form displays your qualified costs and tuition payment total.
- Attach IRS Form 8863, Education Credits—American Opportunity and Lifetime Learning Credits, to your Form 1040 tax return.
- Save documentation of your tuition payments, book and supply receipts, and confirmation of attendance.
Typical Errors to Avoid
While knowing who qualifies for the American Opportunity Tax Credit is important, equally essential is avoiding frequent errors that could cause audits or disqualification. Following these guidelines will help:
- You cannot use the same expenses for several educational tax benefits without double-dipping. If you utilize the AOTC for any tuition, for instance, you cannot also use those expenses for a 529 plan distribution.
- Do not claim for ineligible students: Those who have felony drug offenses or who have already finished four years of college are not eligible.
- Record the correct expenses in your report. Just list eligible costs. Books bought from outside sources count; transportation and food preparations do not.
Frequently Asked Questions
1. Can AOTC claims be made by graduate students?
No, the AOTC is limited to first-year college undergraduate students. Alternatively, eligible for the Lifetime Learning Credit (LLC) are graduate students.
2. Is it possible for me to yearly claim the AOTC?
Indeed, but only for a student’s first four years of college study. As long as you satisfy all the other criteria, you could claim it every year during that term.
3. Suppose my child receives a scholarship?
Scholarships covering tuition cut the total qualified costs you could use for the AOTC. You might still be eligible for partial credit, though, should the scholarship exclude books and materials.
Why American Tax Defense?
Navigating tax incentives like the American Opportunity Tax Credit calls for consistent, informed assistance. In tax resolution and tax services grounded on education, American Tax Defense is a reputable name. Comprising a team of seasoned experts, their focus is on helping people and families maximize their qualified tax credits while being IRS compliant. American Tax Defense provides single advice, open pricing, and a proven track record of effective results. However, selecting American Tax Defense ensures you will be obtaining every dollar you are due and provides peace of mind.
Last thoughts
Knowing who qualifies for the American Opportunity Tax Credit will help you decide how to handle tax season. Whether your role is guardian, parent, or student, this credit could save you up to $2,500 annually—a big assist in paying for college.
Meanwhile, verify your eligibility, assemble your records, and study the IRS guidelines before you file your taxes. Should you be unsure, a tax professional can help you determine whether you qualify.
