What are the American Opportunity Tax Credit and Lifetime Learning Tax Credits?
The American Opportunity Tax Credit may be claimed for payments of qualified tuition and related expenses made on or after January 1, 2020, for academic periods beginning on or after January 1, 2020. The Lifetime Learning Credit may be claimed for the same expenses made on or after January 1, 2020. Payments made in 2020 for periods of attendance that begin in January-March of 2021 may be claimed only on the 2020 Tax Return. If a taxpayer is claiming a credit for the American Opportunity Tax Credit for a particular student, none of that student’s expenses for that year may apply toward the Lifetime Learning Credit.
How much can a taxpayer claim?
For the American Opportunity Tax Credit, a taxpayer may claim a credit up to $2,500 of the cost of each student’s qualified tuition and related expenses paid during the taxable year. For the Lifetime Learning Credit, the credit amount is up to $2,000 for qualified tuition and related expenses per return.
What is the criteria a student must meet to be eligible?
Credit may be claimed for the qualified tuition and related expenses of each student in the taxpayer’s family (i.e., the taxpayer, the taxpayer’s spouse, or an eligible dependent). The American Opportunity Tax Credit may be claimed for a student who (1) is enrolled in 6 credits or more, (2) is in one of the first four years of post-secondary education, (3) is enrolled in a program leading to a degree or certificate, and (4) is free of any conviction for a Federal or State felony offense consisting of the possession or distribution of a controlled substance. For the Lifetime Learning Credit students are not required to be enrolled in 6 credits or more and are not required to be enrolled in the first two years of post-secondary education. Nonresident aliens generally are not eligible for either tax credit.
I’m just beginning college this year. Can I claim the American Opportunity Tax Credit (AOTC) for all four years I pay tuition?
You can claim the tax credit for all four years of higher education as long as you have not claimed the AOTC or the former Hope credit for more than four tax years. If in fact you are not eligible for the AOTC you may still be eligible for the Lifetime Learning Tax Credit for any tuition and fees paid in 2020.
Is there a maximum income limit to be eligible to claim the tax credit?
The amount a taxpayer may claim is gradually reduced for taxpayers who have modified adjusted gross income above a specified amount. A tax specialist should be consulted; this information is not a substitute for professional advice.
Who may claim the tax credit?
An individual may claim the credit for his/her own qualified tuition and related expenses and the qualified tuition and related expenses of his/her spouse and other eligible dependents (including children) for whom the dependency exemption is claimed. Generally, a parent may claim the dependency exemption for his/her unmarried child if: (1) the parent supplies more than half the child’s support for the taxable year, and (2) the child is under age 19 or is a full-time student under age 24.
What are “qualified tuition and related expenses” at BC?
Qualified tuition and related expenses are the tuition and fees a student is required to pay in order to attend BC. The term “qualified tuition and related expenses” has been expanded to include expenditures for “course materials”. For this purpose, the term “course materials” means books, supplies and equipment needed for a course of study whether or not the materials are purchased from the educational institution as a condition of enrollment or attendance. The courses which are included in the Credit must be courses that will lead the student toward a degree or certificate or other recognized educational credential. It does not include courses involving sports, games or hobbies unless it is part of the degree program.
If a student pays qualified tuition and related expenses using a combination of Pell Grant, a loan, a gift from a family member, and some personal savings, what expenses may be taken into account?
The student may take into account only out-of-pocket expenses in calculating the credit. Qualified tuition and related expenses paid with the student’s earnings, a loan, a gift, an inheritance, or personal savings are taken into account in calculating the credit amount. However, qualified tuition and related expenses paid with a Pell Grant or other tax-free scholarship, a tax-free distribution from an Education IRA, or tax-free employer-provided educational assistance are not taken into account in calculating the credit amount.
How is the American Opportunity Credit claimed?
The credit is claimed using Form 8863, attached to Form 1040 or 1040A.
Will I receive something from BC?
Form 1098-T is expected to be mailed late January 2020 to students for whom we received qualified tuition and related expenses. After that time information will be available on tuition & fees paid on the BC Web Site.
How will the IRS know?
We are required to notify the IRS of the name, address, amount paid, and social security number of the student with respect to whom payments of qualified tuition and related expenses were received during 2019.
Do you have to have my Social Security Number?
Yes, to comply with Internal Revenue Service Treasury Regulation 1.6050S-1(e)(4) and Section 6109 of the Internal Revenue Code, the College must request your Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN) in order to furnish you and the Internal Revenue Service with an annual statement (IRS form 1098-T) of Tuition and fees that may qualify for the American Opportunity tax credit or Lifetime Learning tax credit.
If you do not submit your SSN or ITIN, you will not be denied access to the college; however, your 1098-T will be incorrect. You or your tax advisor should check Internal Revenue Code Sections 6109 and 6723 for more information on whether you may be subject to civil penalties for failing to provide a correct SSN or ITIN. Pursuant to state law (RCW 28B.10.042) and federal law (Family Educational Rights and Privacy Act), the college will protect your SSN/ITIN from unauthorized use and/or disclosure.
Last Updated March 9, 2021