American Opportunity Tax Credit & Lifetime Learning Tax Credits Information :: Online Services for Students

The American Opportunity Tax Credit (AOTC) provides college students or their parents with an annual tax credit up to $2,500 of eligible expenses out of the first $4,000. Students are only eligible for the first four years of college, and it requires at least half-time enrollment. (The amount of the credit is 20 percent of the first $10,000 of qualified education expenses or a maximum of $2,000 per return). There is no limit to the amount of years you can claim it.

The American Opportunity Tax Credit provides a tax credit for eligible students participating in a higher education program after high school. You can get 100% of the credit on your first $2,000 of annual educational expenses and 25% of credit on the next $2,000 in expenses per student. Even if the qualifying educational expenses are more than $4,000 per year, you can only receive a maximum credit of $2,500 per year for each student for a maximum of four years. If the amount of the AOTC is greater than the taxpayer’s tax liability, the taxpayer may receive a refund of up to 40% of the excess credit (maximum $1,000). A student who claims the AOTC who can be claimed as an exemption on a parent’s federal income tax return is not eligible for the partial refund.

AOTC vs. LLC

Numerous other proposals would reform, consolidate, or eliminate education tax credits. The New America Foundation’s plan for education reform would eliminate all tuition tax benefits and re-direct the money to Pell Grants. The Institute for College Access and Success recommends eliminating higher education tax provisions as well, instead funneling the money into Pell Grants and incentive funds.

The AOTC is figured by taking the first $2,000 paid towards the student’s qualified educational expenses and adding 25 percent of the next $2,000 in educational expenses, up to $2,500. The amount a taxpayer may claim is gradually reduced for taxpayers who have modified adjusted gross income above a specified amount. https://turbo-tax.org/ A tax specialist should be consulted; this information is not a substitute for professional advice. Individuals and businesses across the United States are eligible for all sorts of different tax credits. These tax credits are meant to provide a little more flexibility and forgiveness for the taxes you need to pay.

Who Qualifies for the American Opportunity Tax Credit?

Eligibility for the tax credit requires examining both school attendance requirements and income guidelines. AOTC credit recipients must be pursuing a degree or credential and be enrolled at least half-time for one semester, trimester, or quarter that started in the tax filing year, such as in 2021 for a 2021 tax return. It is only available for the first four years of higher education, and it cannot be claimed for more than four years.

• Learn more about the cost of going to college and how you might be able to save money.
• Part I guides you through determining your eligibility based on income.
• Also keep in mind a few things; the AOTC is only available for 4 tax years whereas the LLC is available for an unlimited number of tax years, a student does not need to be pursuing a degree to be eligible to claim the LLC.
• However, room and board, transportation and healthcare costs do not.
• Form 1098-T will list the tuition, fees and other expenses required for enrollment that can be used to claim the AOTC.

For the AOTC and LLC, eligible educational institutions include colleges, universities, trade schools and other educational institutions that participate in federal student aid programs. Most accredited postsecondary institutions meet this requirement, and you can double-check in the Database of Accredited Postsecondary Institutions and Programs. Any financial aid or scholarship money not used to pay for tuition or education expenses is taxable income; you may have to report it as income when you file a tax return.

Eligibility

The American Opportunity tax credit (AOTC) is a partially refundable credit for undergraduate college education expenses. Congress talked about eliminating some educational tax breaks at the end of 2017, but the AOTC survived. It can still be claimed for the 2022 tax year, the return you file in 2023, if you qualify.

Higher education can be a worthy, albeit costly pursuit. The American Opportunity Tax Credit (AOTC) is one way to help make college more affordable. For taxpaying students and parents alike, the AOTC allows a maximum credit of $2,500 of the cost of tuition, fees https://turbo-tax.org/an-overview-of-the-american-opportunity-tax-credit/ and course materials paid during the tax year. Qualifying educational expenses include course materials that are required for enrollment, as well as tuition and some fees. The AOTC is considered somewhat better than other education tax breaks in this respect.

Proponents say that expanding the credit to cover third and fourth year students will make it easier for them to stay in school. A study predating the AOTC found that federal aid creates a small persistence effect, encouraging students to stay in school. The lifetime learning credit (LLC) is available for any post-secondary education, including graduate school or undergraduate education beyond four years.

• You can include the cost of a computer if it’s required for the student to take a tech-related class, but not if it’s used in the general course of their education.
• A portion of the AOTC became refundable when the Hope Credit was expanded and renamed the American Opportunity Tax Credit.
• This can be either the taxpayer, spouse of the taxpayer, or a dependent on the taxpayer’s tax return who has qualified education expenses.
• The educational institution should be able to inform a filer whether it is an eligible institution.
• Parents claiming a dependent child who is a full-time student ages 19 to 24 can claim an additional $500 Child Tax Credit.