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Examining the American Opportunity Tax Credit for College Students

What is the American Opportunity Tax Credit and who qualifies for it? Learn all about the criteria to claim this IRS tax benefit to help you save on paying for college.

A photo showing a stack of IRS tax returns for the blog article on the American Opportunity Tax Credit for college students

Earning a college degree is a major expense and one that 69 percent of students (and 14 percent of their parents) cover with the help of student loans. Whether you have money stashed for college or not, finding ways to save can keep the costs of a college education as low as possible. One way to do this is offered by the federal government and it is called the American opportunity tax credit.

What Is the American Opportunity Tax Credit?

The Internal Revenue Service explains that the American opportunity tax credit, or AOTC for short, is a credit offered to students seeking a higher education that can be applied to certain educational expenses. College students who qualify for this credit can claim it during their first four years of study, with a maximum payout of $2,500 per student per year.

The Department of Treasury’s Publication 970 outlines the educational expenses that qualify for credit under the American opportunity tax credit. Besides tuition and enrollment fees, this includes credit for expenses paid for textbooks, supplies, and other equipment that is required as a condition of taking your courses.

AOTC Eligibility Criteria

Eligibility for the American opportunity tax credit is based on income. To qualify, your modified adjusted gross income (MAGI) must be under $90,000 annually, or under $180,000 if you file a joint tax return. If your MAGI is under $80,000, you are eligible to claim the full amount of the credit. If your MAGI is between $80,000 and $90,000, only a partial credit applies.

You must also receive a Form 1098-T, also known as a Tuition Statement, from an eligible institution to qualify for the American opportunity tax credit. (Though, Publication 970 states that this requirement may be waived if the school isn’t required to furnish a Form 1098-T, such as when the student is a qualified nonresident alien or expenses were fully covered by scholarships.)

Other eligibility criteria for claiming the American opportunity tax credit include:

  • Being enrolled at least half-time for at least one academic period in the tax year
  • Being enrolled in a program that leads to a degree or other recognized education credential
  • Cannot have completed first four years of post-secondary education in the prior tax year
  • Cannot have a felony drug conviction related to possession or distribution

How is the American Opportunity Tax Credit Different from the Lifetime Learning Credit?

Both the American opportunity tax credit and lifetime learning credit can reduce the amount of tax you will pay. They both also have certain income-based eligibility requirements. However, these two IRS tax credit options do have some differences.

One of the main differences between the AOTC and the lifetime learning credit is that the AOTC is limited to the college student’s first four years of study whereas the lifetime learning credit has no such limit. Another difference is that the AOTC offers up to $2,500 in credit per student annually and the lifetime learning credit tops out at $2,000 per year per tax return.

The lifetime learning credit also does not have the eligibility criteria of the AOTC (enrolled half-time, no felony conviction, etc.). Understanding these differences can help you decide which credit you’d like to claim as you cannot claim both on the same student during the same tax year.

What You Need to Know Before Claiming This Tax Credit for College Students

It is very important that you know whether you are eligible before attempting to claim the American opportunity tax credit because if you do claim it and are not eligible, you may be banned from claiming it again for up to 10 years.

One factor that makes you ineligible for the AOTC is if you are married but file separately. You also cannot claim this credit if you are listed as a dependent on someone else’s tax return, or if you don’t have a Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN) by the end of the tax year for which you are filing this tax credit.

Need Help Paying for College?

If you are looking for ways to make your college education more affordable, the American opportunity tax credit is a great start.

Saint Leo University’s Financial Aid Office is also available to students who want or need extra financial assistance when earning their degree. Our trained and experienced staff can help identify all of your options for reducing your college-related expenses.

Contact us today at (877)622-2009 or request more information online to learn how we can help you pursue your educational and career goals.

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