How to claim the American Opportunity Tax Credit as a student in 2022. The AOTC is a credit for qualified education expenses paid for an eligible student. Choose the American opportunity credit or lifetime learning credit for eligible costs. If you paid for college in the last year, you may be able to claim the American opportunity credit or lifetime learning credit, or the tuition and fees deduction. The American opportunity credit is generally the most valuable education tax credit, if you qualify.
The American Opportunity Tax Credit is a tax credit to help pay for education expenses paid for the first four years of education completed after high school. You can get a maximum annual credit of $2,500 per eligible student and 40% or $1,000 could be refunded if you owe no tax.
One of the main tax benefits that are in place in the USA to support families who are paying for college is the American Opportunity Tax Credit (AOTC). This tax credit helps students and their families to pay for expenses related to their studies. “The American Opportunity Tax Credit (AOTC) is a credit for qualified education expenses paid for an eligible student for the first four years of higher education,” is the way the Internal Revenue Service (IRS) describes the benefit on their website.
Each eligible student is entitled to a maximum annual credit of $2,500 and can get up to $1,000 refunded if the credit brings the amount of taxes owed down to zero. The credit amount is 100% of the first $2,000 spent on qualified education expenses for each eligible student and 25% of the next $2,000 paid for that student in qualified education expenses. Transcript For Your IRS Tax Return and Refund Status
How to be eligible for the American Opportunity Tax Credit – AOTC student eligibility
To be eligible for the AOTC, students must be pursuing a recognized education credential such as a degree, be enrolled at least half time for one or more academic periods (trimester, semester, quarter, etc.) starting in the tax year. Eligible students must not have claimed the AOTC for over four tax years and not have finished the first four years of higher education at the start of the tax year.
The IRS makes it quite clear as to who is eligible for the AOTC, listing the qualifying criteria as:
- The student must be pursuing a degree or other recognized education credential.
- The student must be enrolled at least half time for at least one academic period* beginning in the tax year.
- The student must not have finished the first four years of higher education at the beginning of the tax year.
- The student must not have claimed the AOTC or the former Hope credit for more than four tax years.
- The student must not have a felony drug conviction at the end of the tax year.
Those with felony drug convictions at the end of the tax year will not be eligible. To claim the AOTC, the law requires a taxpayer or dependent to have received the Form 1098-T, Tuition Statement, from an eligible domestic or foreign educational institution. Learn how to get your IRS Tax Return Transcript immediately
How much money do you get with the American Opportunity Tax Credit?
With the AOTC, students or those who have them as dependent can claim a maximum credit of $2,500 per year per eligible student. Then, if the AOTC reduces the amount of tax owed to $0, eligible students can have 40 percent of any remaining amount of the credit refunded, up to $1,000.
The IRS outlines that the amount of the credit is 100 percent of the first $2,000 of qualified education expenses paid for each eligible student and 25 percent of the next $2,000 of qualified education expenses paid for that student.
American opportunity credit, all you need to know
How the American opportunity credit works
You can lower your tax bill by up to $2,500 if you paid that much in undergraduate education expenses last year. The American opportunity tax credit lets you claim all of the first $2,000 you spent on tuition, school fees, and books or supplies needed for coursework — but not living expenses or transportation — plus 25% of the next $2,000, for a total of $2,500.
What it’s worth: The American opportunity credit cuts the amount of taxes you pay. If you owe $3,000 in taxes and get the full $2,500 credit, for example, you’ll have to pay only $500 to the IRS.
Who can claim the American opportunity credit
The American opportunity credit is specifically for undergraduate college students and their parents. You can claim the credit on your taxes for a maximum of four years. Your parents will claim the credit if they paid for your education expenses, and you’re listed as a dependent on their return.
You can get the full education tax credit if your modified adjusted gross income, or MAGI, was $80,000 or less in 2021 ($160,000 or less if you file your taxes jointly with a spouse). If your MAGI was between $80,000 and $90,000 ($160,000 and $180,000 for joint filers), you’ll end up with reduced credit. If you earn more than that, you can’t claim this credit.
Is the American opportunity credit refundable?
Yes. You can still receive 40% of the American opportunity tax credit’s value — up to $1,000 — even if you earned no income last year or owe no tax. For example, if you qualified for a refund, this credit could increase the amount you’d receive by up to $1,000. That’s why the American opportunity credit is typically the best education tax break for students and their families.
Lifetime learning credit, all you need to know
How the Lifetime learning credit works
You can claim 20% of the first $10,000 you paid toward 2021 tuition and fees, for a maximum of $2,000. The lifetime learning credit doesn’t count living expenses or transportation as eligible expenses.
Is the lifetime learning credit refundable? No. You cannot receive the lifetime learning credit as a refund if you earned no income or owe no tax.
Who can claim the Lifetime Learning credit
The lifetime learning credit isn’t just for undergrads or their parents. The credit applies to undergraduate, graduate and non-degree or vocational students, and there’s no limit on the number of years you can claim it. So it’s ideal for graduate students or anyone taking classes to develop new skills, even if you already claimed the American opportunity tax credit on your taxes in the past. You can’t claim both the American opportunity credit and the lifetime learning credit in the same year.
What the Lifetime learning credit is worth
You can claim the credit if your MAGI was less than $59,000 ($118,000 if you filed jointly) last year. If your MAGI was between $59,000 and $69,000 ($118,000 to $138,000 if you filed jointly), you can get a reduced credit. You can’t get the credit if your MAGI was more than $69,000 ($138,000 if you’re married and filing jointly).
Education tax forms, all you need to know
In January your school will send you Form 1098-T, a tuition statement that shows the education expenses you paid for the year. You’ll use that form to enter the corresponding amounts on your tax return to claim an education tax credit or deduction.
If you or your parents also paid student loans, you may be able to deduct student loan interest from your taxable income. If you paid more than $600 in interest, your servicer will automatically send you Form 1098-E. You can still deduct interest if you paid less than $600, but you’ll have to ask your servicer for the form.
If your company provided funds for educational assistance — like tuition reimbursement or employer student loan repayment — up to $5,250 may not be counted as taxable income. Student loan payments must have been made after March 27, 2020, to be eligible.