American Opportunity Tax Credit

The American Opportunity Credit is one of the tuition tax credits that students that are also taxpayers can claim to reduce their tax bills. The credit amount is available for up to $2,500 to eligible students. 

The eligibility requirements for this tax credit are relatively simple. Most students can claim this tax credit on their federal income tax returns as long as they meet the following.

• You are pursuing higher education or equivalent academic credential.
• You are enrolled at the university or college for at least half the academic year.
• You don’t have a felony drug conviction at the end of the tax year.
• You are in your first four years of higher education at the start of the tax year. 

Calculating the American Opportunity Tax Credit (AOTC) amount

As mentioned, the maximum credit amount is $2,500. The way that the credit is calculated isn’t something that’s going to trouble you. You get $2,000 for the first total amount you pay and the 25 percent of the next $2,000. With these together, the credit totals $2,500. 

Regardless of what you get with the American Opportunity Tax Credit, you get 40 percent of the amount added to your refund. However, the entire amount of the credit isn’t refundable. You only get the 40 percent of the credit you’re eligible to claim added to your tax refund. For example, if you’re eligible to claim $1,500 in AOTC, you get $600 towards your tax refund. You don’t necessarily max out the credit to make it refundable.

How to claim AOTC?

There are two things that are clear about claiming the American Opportunity Tax Credit: you must have a valid Form 1098-T, Tuition Statement issued to you by the school you’re attending, and fill out Form 8863, Education Credits. Note that you can claim the AOTC only four times during your education – essentially once per academic year. 

Then, you need to attach these two tax forms to your federal income tax return. You can use your tuition statement as a guide to calculate how much you can claim. 

Other tuition credit – Lifetime Learning Tax Credit

There is also the lifetime learning tax credit. This tax credit is for the higher education expenses like the AOTC, but you get a credit for 20 percent of the qualified education expenses. The maximum credit limit is $2,000. 

Unlike the AOTC, the Lifetime Learning Tax Credit isn’t refundable, but you get to claim it for the entire duration of your education.