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American Opportunity Tax Credit

American Opportunity Tax Credit The American Opportunity Tax Credit (AOTC) is a tax credit to pay for college expenses. A better college tax credit was needed to encourage more people to go to school to learn new skills to help boost our economy. Don’t miss out on this credit because it can reduce your tax liability.

Claiming the American Opportunity Tax Credit

 If you would like help claiming the American Opportunity tax credit you should use online tax preparation software. Tax software will ask you questions about your life in an interview style and will put your answers onto the correct tax forms for you. Tax Form 8863 (Instructions for Form 8863) must be attached to the 1040, or 1040A income tax return form to claim the AOTC.

The American Opportunity tax credit can be worth as much as $2,500 in tax credits on the first $4,000 of qualifying college expenses. One of the great aspects of this tax credit is some of the qualifying expenses include course materials as well as tuition.

The AOTC applies to all four years of undergraduate college education. This credit is a refundable tax credit for undergraduate college expenses. Up to 40% of the tax credit is refundable which means it can generate a tax refund larger than the amount of payments you made.

If your income is between $80,000 to $90,000 the tax credit is gradually reduced (or “phased out”) for joint filers it’s $160,000 to $180,000. If your income is above the phase out range, the tax credit will not be available for you. If your income falls between the range of the two figures, you get partial tax credit.

The American Opportunity Tax Credit Amount

The maximum amount of the tax credit is $2,500. You get 100% of the first $2,000 spent and 25% of the rest up to $4,000 in qualifying expenses. Up to 40% of the tax credit is refundable. What this means is if your tax bill owed is zero you may get a refund up $1,000 from the American Opportunity Tax Credit.

If you didn’t have any tax owed to reduce by the tax credit, you would receive a tax refund. Not all college tax credits are refundable, for example, the Lifetime Learning credit is non-refundable.

This college tax credit can be claimed for yourself or for your dependent. The student has to be enrolled at least half-time in a college, university or other accredited post-secondary educational institution.

Qualifying Expenses for the American Opportunity Tax Credit

 The qualifying expenses for all credits include tuition and expenses for materials the student needs to take the course. Some college tax credits will only allow tuition as a qualifying expense. The AOTC allows expenses such as books, lab supplies, software and other materials needed for the class. Another good point about the AOTC is the availability for the first four years of college instead of two like most other college tax credits.

American Opportunity Tax Credit Tips

  • Expenses must be qualified educational expenses (Tuition, Books, Equipment, or Supplies if required to attend class)
  • Student must attend school at least half-time 
  • Student must be yourself, spouse, or dependent
  • Income must be below $80,000 (single, head of household, widow, or widower) and $160,000 (married filing jointly) to claim full credit$90,000 – $180,000 (partial credit)

  Try using TurboTax Online if you would like the confidence of knowing you will claim every tax deduction you deserve on your income tax return this year. You may miss out on important tax credits such as, the American Opportunity tax credit if you don’t use tax software, but you can be assured TurboTax will know about all of the tax credits available for you to claim.