The American Opportunity Tax Credit (AOTC)

American Opportunity Tax CreditWhat to know when filing taxes 

College is coming up, and qualified students should prepare for joining and registering in the various colleges. Some may have qualified, but they do not have the means for enrollment. Not to worry, the American Opportunity Tax Credit (AOTC) gives you the aid. This credit is only for education expenses that are qualified, paid for qualified students during their first four years of higher education.

With this credit, any eligible student can get an annual credit of $2,500 at maximum. For the first $2,000 of qualified education expenses, the amount of credit is 100 percent, then 25 percent for the next $2,000. The qualified expenses for this credit consist of the tuition fees and the needed fees for the enrollment at the particular colleges. Expenses such are transport, accommodation or insurance are not qualified in the American Opportunity Tax Credit.

The eligible student refers to:

  • A student who is to pursue a course leading towards a degree or certificate, or any other recognized college education credential.
  • A student who has not completed the first four years of his or her college education as of the start of the taxable year.
  • A student who is carrying at least half of the usual full-time workload for the program he or she is pursuing.
  • A student who has never been convicted of any drug crime.

To claim the American Opportunity Tax Credit; first, the student needs to be in an accredited educational institution. The College provides a tuition statement (Form 1098-T) that helps each qualified student to figure out their credit. After that, the students need to complete Form 8863 for Education Credits before attaching it to Form 1040 of Form 1040A; however, you should be careful when claiming this credit tax. Do not give false or wrong information during the entire application process. Also, be sure to file and record all the documents you use. If in any case, an audit search discovers that you gave out incorrect details or that you were not even qualified in the first place, you will have to pay back the credit you received with interest. You might even be charged with fraud penalty or denied claiming the credit for up to ten years.

One of the major requirements for claiming the American Opportunity Tax Credit is the valid taxpayer identification number (TIN). To be on the safe side, this social security number should be acquired before the due date of the student’s credit return. There are also income limits to claiming this credit tax. The limits include the following:

  • Joint applicants cannot claim the credit if their modified adjusted gross income (MAGI) is more than $180,000.
  • For a married couple applying jointly, they will receive a cut credit if their MAGI are more than $160,000 but under $180,000.
  • To claim the full credit as an independent student, your modified adjusted gross income should not be more than $80,000.

Most of all, get help from the right tax preparer, one that will not put you in trouble because of shady work. Choose one wisely because you will be legally accountable for what will be on your tax return.