View IRS income tax brackets for single, married and head of household filings.
What is the American Opportunity Tax Credit?
The American Opportunity Tax Credit (AOTC) is a tax break that the government offers to eligible students enrolling in a higher-education institution. As part of President Barack Obama’s 2009 stimulus package, the AOTC covers the first $2,500 of educational expenses for families that fall within a certain income bracket.
To be the eligible for the AOTC, the student must be pursuing a recognized education credential or degree, cannot have finished her first four years of higher education at the beginning of the tax year, and must be enrolled at least half time for at least one academic period that tax year. Additionally, the student must not have been convicted of a felony drug charge. The AOTC can be claimed only once per student per tax year.
Taxpayers who paid the qualified educational expenses of a student are eligible to claim the full AOTC amount if they are single-filers whose modified adjusted gross income is $80,000 or less or are married, filing jointly, and earning $160,000 or less. Qualified educational expenses are those required for enrollment at the student’s school like tuition, fees, and course materials, but they don’t include room and board, medical expenses and insurance, or transportation. The AOTC can even be claimed when the expenses are paid for with a student loan.
The credit applies to 100 percent of the first $2,000 of qualified educational expenses and 25 percent of the next $2,000. Forty percent of the amount left over after covering the student’s expenses, up to $1,000, will be refunded to the taxpayer if the AOTC reduces the taxes she owes to zero. The AOTC cannot be claimed when the student receives a scholarship or grant that pays for all his educational expenses.
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American Opportunity Tax Credit example
Orson is an undergraduate this spring, but when he graduates he’ll start graduate school in the fall. He only claimed the AOTC for three years of college, and hopes to claim it for the first year of graduate school. Because he’s still within the income threshold, and has qualified educational expenses, he remains qualified for the AOTC. When he starts graduate school, he can claim the AOTC for the entire taxable year. However, because that year will be his fourth of claiming the AOTC, Orson won’t be able to claim it again.