How to Get the American Opportunity Tax Credit

The American Opportunity Tax Credit (AOTC) is a tax benefit designed to help cover the costs of higher education. Taxpayers who are paying for tuition, fees, and necessary course materials for an eligible student may be able to reduce their tax liability. The credit is specifically for the first four years of postsecondary education, and a portion of it may even be refundable for some taxpayers.

Determining Your Eligibility

Eligibility for the AOTC is contingent upon meeting specific requirements for both the taxpayer claiming the credit and the student for whom the expenses were paid.

Taxpayer Requirements

To claim the AOTC, a taxpayer must meet income limitations based on their Modified Adjusted Gross Income (MAGI). For the 2024 and 2025 tax years, the full credit is available to individuals with a MAGI of $80,000 or less, or $160,000 or less for those who are married and filing a joint return. The credit amount is gradually reduced for taxpayers with a MAGI between $80,001 and $90,000 for single filers, or between $160,001 and $180,000 for joint filers.

Taxpayers with a MAGI above these upper limits cannot claim the credit. Individuals with a “married filing separately” status are not eligible to claim the AOTC. Furthermore, the person claiming the credit cannot be listed as a dependent on another person’s tax return. If parents claim their child as a dependent, only the parents can claim the AOTC for that child’s education expenses, provided they meet all other requirements.

Student Requirements

The student for whom the expenses are paid must satisfy several conditions. The student must be pursuing a program that leads to a degree or another recognized education credential. They must be enrolled at least half-time for at least one academic period that began during the tax year. An academic period is defined by the school and can include semesters, trimesters, or quarters.

The AOTC is only available for the first four years of higher education, and the student cannot have completed these four years before the beginning of the tax year. A student who has already claimed the AOTC or the former Hope credit for four previous tax years is no longer eligible. Finally, the student must not have a felony drug conviction at the end of the tax year to qualify.

Identifying Qualified Education Expenses

Qualified expenses include payments for tuition and fees that are required for enrollment or attendance at an eligible educational institution. This can also include student activity fees if the fee must be paid to the institution as a condition of enrollment. A feature of the AOTC is that it allows for the inclusion of costs for books, supplies, and equipment needed for a course of study, and these materials do not have to be purchased directly from the educational institution.

Conversely, many costs associated with college are not considered qualified education expenses. These non-qualified expenses include:

• Room and board
• Transportation
• Insurance
• Medical expenses, including student health fees

Personal living expenses, such as groceries or vehicle costs, are also excluded. Taxpayers must maintain their own detailed records and receipts for all required course materials bought elsewhere to substantiate the full amount of qualified expenses.

Information and Forms Needed to Claim the Credit

The primary pieces of information you will need include the student’s full name and their Taxpayer Identification Number (TIN), which is typically their Social Security Number. You will also need the full name, address, and Employer Identification Number (EIN) of the eligible educational institution. This information is usually found on the Form 1098-T provided by the school.

The two main forms associated with the AOTC are Form 1098-T and Form 8863. Form 1098-T, Tuition Statement, is an informational document you receive from the student’s school by January 31st. It reports the total payments received for qualified tuition and related expenses in Box 1. While this form is a starting point, the amount in Box 1 may not represent all of your qualified expenses, especially if you purchased required books or supplies from a third party.

Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits), is the official IRS form used to calculate and claim the AOTC. You will complete Part III of the form, which requires you to enter the student’s name and TIN, as well as the institution’s name, address, and EIN. You will also answer a series of questions to confirm the student meets the eligibility criteria, such as enrollment status and prior years of education. Finally, you will enter the total amount of qualified expenses you have calculated.

How to Calculate and Claim the AOTC

The AOTC is calculated as 100% of the first $2,000 of qualified education expenses, plus 25% of the next $2,000 of expenses. This means that to receive the maximum credit of $2,500 per eligible student, you must have paid at least $4,000 in qualified expenses. For example, if you paid $5,000 in tuition and required fees, your credit would be calculated as $2,000 (100% of the first $2,000) plus $500 (25% of the next $2,000), for a total credit of $2,500.

A portion of the AOTC is refundable. Up to 40% of the credit, with a maximum of $1,000, is considered refundable. A refundable credit means that you can receive this amount as a refund even if you do not owe any income tax. If your calculated credit is $2,500, and you have no tax liability, you would receive $1,000 as part of your tax refund.

After calculating the credit amount on Form 8863, you transfer the result to your main tax return. The total credit amount is entered on Schedule 3 (Form 1040), “Additional Credits and Payments.” The completed Form 8863 must be attached to your Form 1040 or Form 1040-SR when you file your taxes.