College tuition and fees can be expensive, but there are tax breaks to help offset the cost. These include the American Opportunity Credit, which expands the previous Hope Credit and is a partially refundable tax credit that can make education more affordable. The American Opportunity Credit AOTC is a tax credit that can help lower the cost of higher education for students and their parents. The credit is partially refundable and can reduce your tax bill to zero or below, which can be a huge relief if you have a big student loan debt.
The AOTC is a more generous education tax break, especially for part-time students. Unlike other credits that apply to just $2,500 of your qualified education expenses, the AOTC covers all tuition payments, course materials, books, and supplies, including computer fees, as well as transportation costs, room and board, and medical expenses. It’s also much easier to claim than other education credits, and you can get it even if your income is above the phase-out thresholds. The credit phases out if your modified adjusted gross income is more than $80,000 for single taxpayers and $160,000 for married couples filing jointly.
Congress often adjusts these phase-out thresholds to keep up with inflation. However, there are still several ways to qualify for the American Opportunity Credit if your income is low enough.
How to Apply for American Opportunity Credit?
- You or your child must be enrolled at least half of the time for one academic period (semesters, trimesters, etc.) in an accredited public, private, or nonprofit college, university, vocational school, or other postsecondary educational institution.
- You must also be a degree or other recognized education credential student and not have a felony drug conviction by the end of the year.
- You must have completed at least one academic semester during the tax year to be eligible for the credit.
- Your class schedule must be at least half-time and have a minimum of 12 credit hours per semester.
- You cannot claim this tax benefit without another education tax benefit, such as the lifetime learning credit.
- You can only claim a maximum of one education credit for yourself, your spouse, or if you list a dependent on your taxes.
- The credit is based on qualified education expenses, which include tuition at an accredited public, private or nonprofit college, university, vocational school, and other postsecondary educational institutions, enrollment fees, books, and course materials. To qualify, these expenses must be paid for the first four years of postsecondary education.
Finally, ensure you have a valid Social Security or other tax identification number on hand when you file your taxes. You’ll need it to verify your AOTC claim on your tax return.
To claim the AOTC, enter your Modified Adjusted Gross Income (MAGI) on Form 8863, a worksheet in Publication 970. Once you have this number, the next step is to enter the credit amount on Form 1040, which is the core income tax filing document.