For households with college students, tax filing time can be especially complicated, but there is also the potential for a $2,500 tax credit.
The American Opportunity Tax Credit (AOTC) is a credit worth up to $2,500 per household, based on eligible costs that include college tuition, fees and course materials paid during the taxable year. Forty percent of the credit (up to $1,000) is refundable. This means you can get it even if you owe no tax. The eligible student has to be enrolled during the first four years of higher education.
As part of the 2015 year-end budget bill passed by Congress, the AOTC is now a permanent part of the tax code.
A taxpayer whose modified adjusted gross income (MAGI) is $80,000 or less ($160,000 or less for joint filers) can claim the credit for the qualified expenses of an eligible student. You cannot claim the credit if your MAGI is over $90,000 ($180,000 for joint filers).
The college expenses covered must be for an academic period that begins in the same taxable year; or an academic period that begins in the first three months of the following taxable year.
Claiming the credit
Generally, students receive a Form 1098-T “Tuition Statement” from their school by January 31. This statement helps you figure your credit. The form will have an amount in either box 1 or 2 to show the amounts received or billed during the year. But, this amount may not be the amount you can claim.
Read more from the IRS on the AOTC.