One of the main tax benefits that is in place in the United States supporting families paying for college is the US Opportunity Tax Credit (AOTC). This tax credit helps students and their families pay for education-related expenses.
“The American Opportunity Tax Credit (AOTC) is a credit for qualifying educational expenses paid to an eligible student during the first four years of college,” so the Tax Service (IRS) describes the benefit on their website.
How much money do you get with the US Opportunity Tax Credit?
With the AOTC, students or their dependents can claim a maximum credit of $2,500 per year per qualifying student. Then, if the AOTC reduces the amount of tax owed to $0, qualifying students can get a refund of 40% of any remaining credit amount, up to $1,000.
The IRS says the credit amount is 100% of the first $2,000 of eligible educational expenses paid for each eligible student and 25% of the next $2,000 of eligible educational expenses paid for that student.
Which students are eligible for the US Opportunity Tax Credit?
The IRS makes it clear who is eligible for the AOTC, listing the qualification criteria as follows:
- The student must be pursuing a degree or other recognized educational credential.
- The student must be enrolled at least half-time for at least one academic period* beginning in the tax year.
- The student must not have completed the first four years of higher education at the start of the tax year.
- The student must not have claimed the AOTC or the old Hope credit for more than four tax years.
- The student must not have a drug felony conviction at the end of the tax year.
There are also certain limits or reductions based on Modified Adjusted Gross Income (MAGI), which must be $80,000 or less to claim the full credit.
How many students are eligible for the US Opportunity Tax Credit in 2022?
Even families with a modified adjusted gross income greater than $80,000 but less than $90,000 can still claim this credit, but it won’t be the full amount. Only if the MAGI exceeds $90,000 you cannot claim this credit at all. Therefore, most students in the United States are eligible for this tax relief.