American Opportunity Tax Credit Introduction
The American opportunity Tax Credit is a U.S. education tax credit. This tax credit can help eligible students pay for their education in higher education. The scope of higher education under this tax credit is the first four years of higher education after high school graduation. This article briefly describes the requirements for the tax credit, who needs to pay for qualified educational expenses, how to claim the tax credit, and how the tax credit is calculated.
To receive the American Opportunity Tax Credit, students need to meet all the following requirements:
- At the end of the tax year, the student does not have a felony or drug conviction.
- At the beginning of the tax year, the student has not completed the first four years of higher education.
- Starting from the tax year, the student has not completed the first four years of higher education.
- For each eligible student, the American Opportunity Tax Credit has not been previously claimed for more than four tax years.
- The student is pursuing a degree or other recognized educational credential.
An academic period refers to a semester, trimester, quarter, or any other period of study. Such as summer school session. The academic period is generally determined by the school.
Qualified educational expenses include the following:
- Tuition fees for higher education.
- Enrollment fees for higher education requirements.
- Course material fees required for higher education course.
The American Opportunity Tax Credit requires that qualified educational expenses must be paid by the taxpayer, the taxpayer’s spouse, the student himself, or a third party.
To claim the American Opportunity Tax Credit, taxpayers or dependents need to obtain a tuition statement form (1098-T) from an eligible educational institution. This form mainly includes qualified educational institution information and student information. For example, the educational institution’s name, address, and EIN number, and the student’s name, individual SSN/ITIN number, and address. Generally, students will receive this form from the school by January 31st of each year. Then, the taxpayer needs to file Form 8863 for the education credit. The form mainly includes the refundable American Opportunity Tax Credit portion, the non-refundable education credit portion, etc. Finally, the taxpayer attaches the completed form to the individual income tax return.
Each eligible student can claim up to $2,500 for the American Opportunity Tax Credit. The Calculation method is the 100% of the first $2,000 of eligible education expenses plus 25% of the additional $2,000. The American Opportunity Tax Credit is a refundable tax credit. This tax credit can be used to deduct any tax paid by the taxpayer. 40% of the remaining tax credit can be refunded to the taxpayer if there is any remaining after all taxes have been paid.
Reference:
https://www.irs.gov/credits-deductions/individuals/aotc
https://www.eitc.irs.gov/other-refundable-credits-toolkit/compare-education-credits/compare-education-credits#Third%20Party
https://www.irs.gov/pub/irs-dft/f1098t--dft.pdf
https://www.irs.gov/pub/irs-pdf/f8863.pdf |
