TAX BEnefits
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American Opportunity Tax Credit
Save your course material receipts for this academic year. You may be eligible for a tax credit up to $2,500.
The Obama Administration extended the American Opportunity Tax Credit (AOTC), which was initially created under the Recovery Act, for an additional two years as part of the year-end tax cut package signed in December 2010. Consequently, for tax years 2011 and 2012 a taxpayer may be able to claim an AOTC of up to $2,500 for qualified tuition and related expenses not covered by scholarship or grant aid for each eligible student.
For how many years can the AOTC be claimed for each eligble student?
The AOTC can be claimed for expenses for the first four years of post-secondary education.
How much is the AOTC worth?
It is a tax credit of up to $2,500 of the cost of qualified tuition and related expenses paid during the taxable year.
What education expenses qualify for the AOTC?
The term “qualified tuition and related expenses” includes tuition/fees required for enrollment as well as course-related books, supplies and equipment. Note: Books, supplies and equipment do not need to be purchased from the institution in order to qualify.
How is the AOTC calculated?
Taxpayers will receive a tax credit based on 100 percent of the first $2,000 of tuition, fees and course materials paid during the taxable year, plus 25 percent of the next $2,000 of tuition, fees and course materials paid during the taxable year.
How will the AOTC affect my income tax return?
You will be able to reduce your tax liability one dollar for each dollar of credit for which you're eligible. If the amount of the AOTC for which you're eligible is more than your tax liability, the amount of the credit that is more than your tax liability is refundable to you, up to a maximum refund of 40 percent of the amount of the credit for which you're eligible.
Who is eligible for the AOTC?
A taxpayer who pays qualified tuition and related expenses and whose federal income tax return has a modified adjusted gross income of less than $80,000 ($160,000 for joint filers) is eligible for the credit. The credit is reduced ratably if a taxpayer's modified adjusted gross income exceeds those amounts. A taxpayer whose modified adjusted gross income is $90,000 ($180,000 for joint filers) or more cannot benefit from this credit.
What is "modified adjusted gross income" for the purposes of the AOTC?
It is the taxpayer's adjusted gross income increased by foreign income that was excluded, and by income excluded from sources in Puerto Rico or certain U.S. possessions.
How is the AOTC claimed?
The credit is claimed using Form 8863, attached to Form 1040 or 1040A.
I'm just beginning college this year. Can I claim the AOTC for all four years I pay tuition?
The AOTC is for amounts paid in 2011 and 2012 only.
* The information provided above is premised on the best available information at the time of publication. If you are interested in filing for an AOTC, K-State encourages you to review IRS Publication 970 and/or to consult your tax preparer/advisor for final, authoritative guidance.