American Opportunity Tax Credit 2022: (AOTC) is a financial assistance to children or for taxpayers to pursue Post-secondary education. AOTC permits taxpayers to reduce income taxes up to $2500 for each eligible student.
IRS allows students who are on H1B, GC, GC EAD, Citizens and Resident Aliens to claim American Opportunity Credit or Lifetime Learning Credit on their tax returns to get tax benefits; in turn, an eligible person can seek education for any further progress in their careers.
Types of Education Credits
American Opportunity Tax Credit (AOTC): Is a Refundable Credit will get you refunds even though there is not tax left on your tax returns for calculation (OWE Amount).
Lifetime Learning Credit (LLC): is a Non-refundable Credit which will help you to get refunds up the amount you OWE to IRS.
We have taken this time as an opportunity to help you get as much as information possible. Please go through the below-required information about American Opportunity Credit (AOTC) for any updates please feel free to write us an email.
Additional information on American Opportunity Tax Credit (AOTC)
In order to claim (AOTC) a student (H1, GC, GC EAD and Citizen) should be eligible, AOTC can be claimed one in a year on a tax return and the maximum claimable amount is $2500.
The first allowable AOTC is 100% of first $2000 and 25% of 2nd $2000 on eligible education expenses for each student.
If there is no tax left on tax returns, 40% of remaining credit amount will be refunded (up to $1000).
Qualified Expenses: College or University fees, supplies, curriculum books, or any other expenses on education.
Note: IRS does not allow Room rent, boarding expenses, Insurance, Medical expenses, Transportation, Living or Family expenses under AOTC.
Who can be eligible for American Opportunity Tax Credit (AOTC)?
The student must have:
- Should be studying in degree or recognized education
- Should have been enrolled half of a time period in particular academic year, from the beginning tax year
- Should not have finished four years of continued education in the beginning months of the tax year
- Should not have claimed any education credits more than four years
- Should not have been convicted under felony drug case
Who is not eligible to claim American Opportunity Tax Credit (AOTC)?
- Students who are on F1 OPT/CPT and Non-Residents are not eligible to claim AOTC on their tax returns.
- Your filing status is married filing separately (MFS).
- You have been claimed as a dependent on someone’s tax returns.
- You could not get SSN or TIN before the tax filing due date.
A Student/taxpayer should have got TIN (taxpayer identification number) before the tax due date of a particular tax year (2016, 2017, 2018, 2019), if not IRS may reject the credit.
If ineligible student claimed the credit on tax returns, and the tax returns are audited by the IRS there could be huge penalties with interest which has to be paid by the taxpayer at any cost.
If the taxpayer has realized the mistake of claiming the education credit on his tax returns when he is not eligible, IRS allows a student to correct his tax return by removing his claimed education credit on Amended tax returns, which can be a relief for a student by avoiding any notices or audits from IRS.
Note: If the ineligible student claims American Opportunity Tax Credit (AOTC), then IRS bars a student to claim AOTC from 2-10 years.
Double Check to Claim Education Tax Credit (AOTC)?
A student when he is enrolled in a college or school he/she is entitled to get the 1098T document from respective college or school.
Example: 1098-T
The amount paid towards the fees can be seen in boxes 1 or 2 of form 1098T issued by your University or School.
Once a student receives form 1098T, it should be thoroughly checked for incorrect information. If the details are incorrect or did not receive the form 1098T from College or University, the student should meet the concerned college or university authorities.
While claiming American Opportunity Tax Credit, a completed filled Form 8863 should be attached to Form 1040 or Form 1040A at the time of filing tax returns.
What should be the annual income limits to claim American Opportunity Tax Credit (AOTC)?
In order to claim full American Tax/college tax credit (AOTC), Married Filing Jointly (MFJ) modified adjusted gross incomes (MAGI) should be/ should have been between $160,000 to $180,000. Single Tax Filing and head of the household (HOH) or Qualifying Surviving Spouse (QSS) annual income between $80,000 to $90,000.
We come across clients every tax year who gets audit/expensive notices from IRS for filing incorrect tax returns, IRS and State Income Tax Department states, a taxpayer who is on F1-CPT/OPT Visa should file form 1040NR/1040NR-EZ and should not claim American Opportunity Credit (AOTC) or Lifetime Learning Credit (LLC), since H1B, L1, GC, GC EAD, Citizens and Resident Aliens are eligible to file Form 1040 and claim College Tax Credit or Education Credits formerly known as AOTC & LLC .
The taxpayers who have already filed incorrect returns still have a chance to correct last three years filed tax returns, if IRS checks the tax returns it can send out expensive notices or audit letters which will make them pay huge amount as penalty, since IRS can check taxpayers filed last six years tax returns with the help of sophisticated software to ensure accuracy and correctness.
We can help you in checking your last three filed tax returns and let you know any correction has to be done.
We just want to ensure that you file Accurate and correct tax returns and avoid paying penalties.