American Opportunity Credit

 

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 and course materials paid during the tax year. 

American Opportunity Tax Credit (AOTC) on photo of a college student

What’s more, the American Opportunity Credit is partially refundable. That means if you’ve paid your applicable taxes and there’s some of the credit left over, you could receive money back as a refund. We’ll get into those specifics a little later.

Have other student tax filing questions?  Be sure to visit our Tax Guide for College Students and find out about student forms that can be filed for free.  

American Opportunity Credit rules

On top of tuition and fees, books and supplies (including a computer) count as eligible expenses.  However, the same tuition expenses may not be used to claim any of the other education credits, deductions or exclusions.

Instead of applying the credit directly to $2,500 of qualified expenses, the American Opportunity Credit rules work slightly differently. The expense calculations are broken into two parts.

Here’s what that looks like. If you’re an eligible student, you can apply the AOTC to:

  • 100% of the first $2,000 of qualified expenses and
  • 25% of the next $2,000 of qualified expenses

As mentioned above, the American Opportunity Tax Credit is refundable. If you don’t have a tax liability for the year, you can get up to 40% ($1,000) back. 

Let’s review an example to see this in action:

Steve and Carol pay $8,000 in eligible education expenses during the tax year for their daughter’s junior year in college. Their tax liability for the tax year is $1,000. Under the American Opportunity Credit, they qualify for a credit of $2,500, $1,000 of which is refundable.

Kiddie tax exception –  If the AOTC is claimed by a child who is subject to the kiddie tax, the credit is not refundable. Note that the student need not actually pay kiddie tax to be considered subject to the kiddie tax.

American Opportunity Credit phaseout – If your modified adjusted gross income (MAGI) is more than $80,000 ($160,000 if you’re married filing jointly), your eligibility will start to “phase out” – meaning you may only qualify for a partial credit or none at all.

American Opportunity Credit requirements and eligibility

To claim the American Opportunity Tax Credit, you’ll have to meet several requirements.

Enrollment –You must be enrolled for at least one academic period that begins in the tax year. You also must be:

  • Enrolled at least part time.
  • Enrolled in a post-secondary undergraduate program leading to one of these:
    • Degree
    • Certificate
    • Other recognized educational credential

The school decides what qualifies as full-time or half-time enrollment. Although the number can be higher or lower, most educational institutions see 12-credit hours in one semester as full-time status.

However, the standard for half-time workload cannot be lower than the standard established by the Department of Education.

Years of study – The student must not have completed the first four years of post-secondary education as of the beginning of the taxable year. This definition is also determined by the school.

Claiming the AOTC previously – You can only claim the American Opportunity Tax Credit four times.

What can affect your eligibility for the American Opportunity Credit?

There are a few situations which may exclude you from taking the credit. You can’t take the AOTC if any of the following apply:

  • Your filing status is married filing separately (MFS).
  • You are claimed as a dependent on another person’s tax return (such as the taxpayer’s parents’ return).
  • You (or your spouse) was a nonresident alien for any part of the year and the nonresident alien did not elect to be treated as a resident alien for tax purposes.
  • You used the same expenses to claim a Tuition and Fees Deduction or a Lifetime Learning Credit.
  • You used the same expenses to treat a scholarship, grant, or employer-provided educational assistance as tax-free.
  • You received a refund of all of the expenses.
  • The eligible student did not have a SSN or ITIN on or before the due date for filing the tax return for the tax year.

If any of the above has disqualified you, don’t despair. The Lifetime Learning Credit is available to students who don’t meet American Opportunity Credit eligibility. This can include students who are enrolled for college credit less than half-time or have already completed four years of post-secondary education.

Tax form for the American Opportunity Credit

If you paid qualified educational expenses during a specific tax year to an eligible intuition, then you will receive Form 1098-T.  Colleges are required to send the form by January 31 each year, so you should receive it shortly after that. Some colleges may make it available to you electronically.

Claiming the American Opportunity Credit

You can file the forms related to the American Opportunity Credit for free using H&R Block Free Online

Related Topics

Related Resources

IRS Head of Household Requirements

Learn more about the IRS requirements for filing head of household with help from the tax experts at H&R Block.

Health Savings Account & Flexible Spending Account

Learn more about the HSA versus the FSA and get tax answers at H&R Block.

What is virtual tax preparation?

Virtual tax preparation lets you complete your taxes from the comfort of your home. Find out how easy remote tax preparations can be at H&R Block.

Learn How To Apply For An EIN

Do you need to get an EIN for your small business? Learn more about the EIN application process and get tax answers at H&R Block.