Credit Amount: The AOTC offers a maximum annual credit of $2,500 per eligible student. This is calculated as 100% of the first $2,000 of qualified education expenses and 25% of the next $2,000.
Refundability: If the credit brings your tax liability to zero, 40% of the remaining credit amount (up to $1,000) can be refunded to you.
Eligibility Criteria:
Student Status: The student must be pursuing a degree or other recognized education credential.
Enrollment: Enrolled at least half-time for at least one academic period during the tax year.
Time Frame: Available only for the first four years of postsecondary education.
Felony Convictions: The student must not have a felony drug conviction at the end of the tax year. irs.gov
Qualified Expenses: These include tuition, fees, and course materials required for enrollment or attendance. Expenses such as room and board, transportation, and insurance are not eligible.
Income Limits: The credit phases out for taxpayers with a modified adjusted gross income (MAGI) above $80,000 ($160,000 for joint filers) and is not available for those with a MAGI above $90,000 ($180,000 for joint filers).
Claiming the Credit: To claim the AOTC, complete Form 8863 and submit it with your Form 1040 or 1040-SR. Ensure you receive Form 1098-T from the educational institution, which provides information needed to claim the credit.
By understanding and utilizing the AOTC, students and their families can significantly reduce the financial burden of higher education expenses.