The American Opportunity Tax Credit (AOTC)is offered to taxpayers with dependents for covering educational expenses. The taxpayers who wish to receive this credit must file their taxes now, as today is the last day of the 2025 tax season.
The AOTC has a refundable portion up to $1000 (40% of the remaining credit amount) that you can receive. The refundable portion means you will get the refundable portion if the credit brings the taxes you owe to the agency to nil. It is one of the credits that helps parents or guardians to cover their education without any financial stress.
As per the IRS guidelines, the taxpayers must meet the income limit to qualify for this credit, and the student should meet the eligibility criteria set for the credit. The AOTC helps the taxpayers to cover the higher education cost (post-secondary educational institutions) for the expenses paid during the tax year.
| Credit | American Opportunity Tax Credit (AOTC) |
| Who qualifies? | Taxpayers with dependents who meet the eligible student criteria |
| Income Limit | $80K to $90K (single filers) and $160K to $180K (joint filers) |
| Maxi. Annual Credit | $2500 |
| Refundable portion | $1000 |
| Purpose | To offer financial support to the parents or guardians for the child’s education |
| How to claim? | Filing tax return |
| Tax Deadline | 15 April, 2025 |
| Official Website | https://www.irs.gov/credits-deductions/individuals/aotc |
Who can claim?
As per the IRS guidelines, the US taxpayers with the following eligibility criteria can claim the AOTC tax credit with their tax returns:
- The child for whom you are claiming the AOTC needs to fulfill the requirements for eligible students.;
- The eligible student must be claimed as a dependent on your following year tax return.
- You pay for the educational expenses of the eligible student’s higher education.
- You must meet the income limit criteria set for AOTC, such as:
- Your net income should be under the threshold $80,000 or less and $160,000 or less for joint filers, if you wish to receive the full credit.
- The credit will reduce the income above $80,000 for individuals and $160,000 for couples filing jointly, however, the credit will stop, or you cannot claim it, if your MAGI exceeds $180,000 (for joint filers) and $90,000 (for individuals)
Eligible Student
The students must meet the following criteria to be eligible to receive the credits under the AOTC:
- The student must be studying or pursuing an approved higher education or other degree;
- The student must be enrolled for a minimum of half of the academic period at the start of the tax year.
- The eligible student should be in the initial year of the course, because the IRS states the students must not have completed the first four years of the educational course or degree.
- The students who are convicted of any crime by the end of the tax year will be ineligible for the tax credit.
- The student has never claimed Hope credit or AOTC for more than four tax years.
Eligible Expenses
The taxpayers can claim the AOTC only for the following qualified expenses for the post-secondary education institutions:
- Qualified Tuition
- Your fee for attendance or admission at the eligible institutions.
- Costs incurred for the academic session that started within the first three months of the tax year or in the tax year.
Exclusion:
- Transportation
- Insurance
- Medical Expenses
- Room and board
- Similar expenses that are used in other educational benefits or tax deductions;
- Expenses paid via the tax-free educational support of the federal government
Credit Amount
The taxpayers can expect the refundable portion of the credit up to $1000, if this credit claim brings their taxes to zero. The $1000 refundable portal is 40% of the annual credit, which will be refunded to you with your tax refund.
The credit can be broken down as follows: the IRS will fund 100% of the first $2000 in qualified school or institution educational costs for each eligible student, and 25% for the next eligible cost. The yearly maximum credit amount set under the AOTC is $2,500
Documents Required to Claim
Taxpayers must have the following documents to claim the AOTC credit with their tax returns:
- Form 1098-T from the eligible educational institution.
- The Form 1098-T is not issued to the following students by the educational institution, they can claim the credit:
- Qualified Non-resident Alien
- Students who received full scholarships for their qualifying educational costs, and students whose eligible costs were paid for by taxpayers using the official billing system;
- Students who are pursuing educational courses for which they do not gain any academic credit.
- Valid TIN (taxpayer Identification Number)
Steps to claim
The taxpayers who wish to claim the AOTC for the eligible students can follow the following steps:
- You should have the required documents in hand to claim the AOTC, Form 1098-T, and other expenses evidence.
- You find the Form 8863 (Education Credits), fill out the form, calculate your credit, and submit this via your tax returns (Form 1040 or 1040-SR).
- You must use the electronic methods to file your tax return for the 2024 tax year, as today is the last date.
- You can file the tax return via IRS Direct File (if it is applicable for your state), or IRS Free File.
Taxpayers who haven’t claimed the AOTC for their dependent students’ higher education expenses must claim the credit today before the tax day ends and receive the refundable portion of up to $1000 if they meet the criteria.