$2,500 American Opportunity Tax Credit: Who Gets It, How Much And How To Claim It

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Federal stimulus checks are nowhere in sight, so it is important that you take advantage of every opportunity to avail yourself of any regular federal credits. One such credit is the American Opportunity Tax Credit (AOTC), which provides financial relief to students pursuing higher education. Eligible students can get an annual credit of up to $2,500.

American Opportunity Tax Credit: How Much Could You Get?

Introduced in 2009 as part of the American Recovery and Reinvestment Act, AOTC offers a federal tax credit to assist students and families in paying for higher education expenses. Initially, it was set to expire in 2010, but it has been extended many times, most recently through 2025.

The AOTC replaced the Hope Credit to offer more tax credits and cover more students and families. Eligible students can get up to $2,500 in tax credit toward qualifying education expenses, such as course materials, tuition and enrollment fees.

The AOTC amount is 100% of the first $2,000 qualified education expenses per student, and 25% of the next $2,000 qualified education expenses. So, a student with $4,000 or more in qualified education expenses will qualify for the full credit amount of $2,500.

It must be noted that certain tax-free educational assistance, including employer-provided education assistance, fellowships and scholarships, must be reduced from the total education expenses to calculate the American Opportunity Tax Credit.

The student or the taxpayer claiming the student as a dependent on their personal tax return can claim the AOTC. The claimant needs to fill out relevant sections of IRS Form 8863 and submit it along with their personal income tax return to claim the AOTC.

You won’t be able to claim the credit if your spouse (if you are filing jointly) and the qualifying student doesn’t have a valid taxpayer identification number (TIN).

Who Will Get AOTC?

The American Opportunity Tax Credit doesn’t cover all educational institutions. The AOTC covers nonprofit, accredited public and proprietary post-secondary institutions. These institutions must register for the U.S. Department of Education’s federal student aid programs.

To qualify for the AOTC, a student must be enrolled at least half-time for at least one academic period and not have completed the first four years of higher education at the start of the tax year.

Also, students must not claim the AOTC (or the earlier Hope credit) for over four tax years and must not have had a felony drug conviction at the end of the tax year. It must be noted that one education credit per student per year is allowed.

Claimants need to meet the income criteria as well. The income limit for individuals, head of household, or a qualifying widower is below $90,000, while for those filing jointly, it is below $180,000. The credit amount will gradually decrease for joint filers with income between $160,000 and $180,000 (between $80,000 and $90,000 for others).

Visit the IRS website for more information on the American Opportunity Tax Credit.