Keep records that show student enrollment and the amount of paid qualified tuition and related expenses. You may need to send copies if we contact you regarding your AOTC claim. You calculate AOTC based on 100 percent of the first $2,000 of qualifying expenses, plus 25 percent of the next $2,000, paid during the tax year. You reduce the amount of tax you owe dollar for dollar by the amount of AOTC you qualify for up to the amount of tax you owe.

The American Opportunity Tax Credit (AOTC) is even more generous than the LLC, offering up to $2,500 per year per student. To be eligible, you must be an undergraduate student or the parent of an undergraduate student who qualifies are your dependent. The student must be enrolled at least half-time and be pursuing a degree or education credential. Take some time to file, and you might discover you’re owed a tax refund — you don’t want to leave that lying on the table.

Standard vs. itemized deductions

The IRS released a draft W-2 form for 2026 on Aug. 15 that takes into account tax provisions in the One Big Beautiful Bill Act for deductions related to tip income and overtime pay. Room & board (R&B) are qualified expenses for a 529 distribution, but not for a credit or for scholarships to be tax free. To qualify for a scholarship, students must come from households earning no more than 300% of their county’s median income and be eligible to attend a public school.

Two tax credits that can help cover the cost of higher education

Learn more about the American Opportunity Tax Credit, its eligibility requirements, and how it can help you save on qualified education expenses. Each dollar from a tax credit means a dollar back in your pocket. Tax deductions recoup only a fraction of each dollar you pay in taxes, because they just reduce your taxable income.

Qualifying expenses

Enter the refundable part of the credit on Form 1040 or 1040-SR, line 29. To claim AOTC, complete Form 8863 and submit it with your Form 1040 or 1040-SR. Enter the nonrefundable part of the credit on Schedule 3 (Form 1040 or 1040-SR), Line 3. Enter the refundable part of the credit on Form 1040 or 1040-SR, Line 29. You will benefit from knowing your rights as a taxpayer and being familiar with the IRS’s obligations to protect them.

Q8. Who is an eligible student for AOTC?

For simple tax returns only, file fed and state taxes free, plus get a free expert review with TurboTax Live Basic. Finally, the last $600 of the refundable credit is paid to you as a tax refund. That means a portion of the credit will be refunded to you even if you don’t owe any federal income tax. Undergraduate students taking only a few courses are also more likely to take the Lifetime Learning Credit because there is no minimum enrollment requirement.

Students whose tuition and related expenses are waived entirely or paid entirely with scholarships or grants. Yes, you are not required to claim the credit for a particular year. If your child’s college does not consider your child to have completed the first four years of college at the beginning of 2019, you may take the credit in 2020. This means that you’ll receive less of credit if your MAGI is more than $80,000, or $160,000 if you’re married and filing jointly. However, there are certain situations where it might be advantageous for college students to file independently. For example, some higher education tax credits are only available to moderate-income earners.

• In these situations, we have attached notes to the tax returns stating why a valid Form 1098-T was not presented to the student and how the education credits were calculated.
• Without clear guidelines on the matter, the authors assume it is best to rely on the terms of the scholarship or grant regarding what nonqualified expenses it can be used to pay.
• In fact, the average total price for a four-year degree from a public in-state university is almost $88,000.
• You’re legally responsible for what’s on your return, even if someone else prepares it.
• In addition, under Sec. 529(c)(2)(B), an individual can “superfund” or “superload” a 529 plan by contributing five years’ worth of gifts ($75,000) in one tax year.

Q22. Can students with an F-1 visa claim AOTC?

The facts are the same as in the previous example, except that the parents’ AGI is above the limit to claim the American opportunity tax credit and the lifetime learning credit. It might now be bigger, better college tax credit more beneficial to have the child claim the credit on his or her own return rather than that of the parents. The parents would lose the family tax credit for the student, increasing their tax, but the student would be eligible to claim the American opportunity tax credit or the lifetime learning credit.

CHIPS Act final regs. offer many taxpayer-friendly provisions

• You calculate AOTC based on 100 percent of the first $2,000 of qualifying expenses, plus 25 percent of the next $2,000, paid during the tax year.
• This means that you’ll receive less of credit if your MAGI is more than $80,000, or $160,000 if you’re married and filing jointly.
• The maximum annual credit is $2,000, calculated as 20% of the first $10,000 in qualifying educational expenses.
• Their parents may claim the AOC for them both, for a maximum credit of $5,000.
• If B is not claimed as a dependent on any taxpayer’s return (regardless of whether he can be claimed as a dependent by any taxpayer), he generally can claim the American opportunity and lifetime learning credits.

However, just because any nontaxable scholarship or grant can be applied to qualified education expenses when calculating education credits does not necessarily mean it must be applied. Taxpayers who paid for higher education in 2021 can see these tax savings when they file their tax return. If taxpayers, their spouses, or their dependents take post-high school coursework, they may be eligible for a tax benefit. To claim either credit, taxpayers complete Form 8863, Education Credits, and file it with their tax return.

The Trade Preferences Extension Act 2015 requires most students to have received a Form 1098-T, Tuition Statement. To be eligible to claim AOTC or LLC, the law requires a taxpayer or dependent to have received Form 1098-T from an eligible educational institution (exceptions apply; see Q&A 18). A tax filer can claim a tuition tax credit for money spent on your college expenses only if you’re listed as a dependent on that person’s tax form.

For AOTC but not LLC, qualified tuition and related expenses include amounts paid for books, supplies and equipment needed for a course of study. You don’t have to buy materials from the eligible educational institution. Add amounts paid for these materials on Form 8863 to your other adjusted qualified education expenses. The total of all qualified tuition and related expenses for calculating AOTC can’t exceed $4,000 and as explained in Q&A 3, the maximum allowable credit is $2,500.

CPA Practice Advisor is the definitive technology and practice management resource for accounting and tax professionals. CPA Practice Advisor has products that deliver powerful content to you in a variety of forms including online, email and social media. Tax Credits for Higher Education Expenses The American Opportunity Credit allows you to claim up to $2,500 per student per year for the first four years of school as the student works toward a degree or similar credential. If you claimed expenses that weren’t reported on Form 1098-T, Box 1 as amounts paid, send us copies of receipts, cancelled checks or other documents as proof of payment. If you attend school in a different state than your tax home (aka your parents’ house), make sure you pay taxes on any earnings from both states if applicable. If you’re eligible for the LLC and the AOTC for the same student in the same year, you can only choose one credit, but not both.

A. For most alien individuals present in the U.S. on an F-1 Student Visa, the answer is no. Thus, if you are an alien individual with an F-1 Student Visa, you are probably a nonresident alien. All features, services, support, prices, offers, terms and conditions are subject to change without notice. The latest articles and tips to help parents stay on track with saving and paying for college, delivered to your inbox every week.