What Is the American Opportunity Tax Credit (AOTC)?
What Is the American Opportunity Tax Credit (AOTC)?
The AOTC allows eligible taxpayers to claim up to $2,500 per eligible student per year for qualified education expenses during the first four years of postsecondary education.
The credit is partially refundable—up to $1,000 of the credit can be refunded even if the taxpayer owes no tax.
It covers 100% of the first $2,000 of qualified expenses and 25% of the next $2,000.
Who Qualifies for the AOTC?
To claim the AOTC, the taxpayer, student, and educational expenses must meet several criteria:
Student Requirements:
Must be pursuing a degree or recognized education credential.
Must be enrolled at least half-time for at least one academic period beginning in the tax year.
Must not have completed the first four years of higher education.
Must not have claimed the AOTC for more than four tax years.
Must not have felony drug convictions at the end of the tax year.
Taxpayer Requirements:
The taxpayer (or the student, if claiming for themselves) must pay qualified education expenses.
Can be the student, a parent, or another eligible person who claims the student as a dependent.
Must provide the Form 1098-T from an eligible educational institution.
Income Limitations:
The credit begins to phase out for:
Single filers with a modified adjusted gross income (MAGI) above $80,000.
Married couples filing jointly with MAGI above $160,000.
The credit is completely phased out at:
$90,000 for single filers.
$180,000 for married couples filing jointly.
Married filing separately filers are not eligible for the AOTC.
Examples of Who Qualifies
1. A Married Couple Supporting Their College Student
Scenario: John and Lisa are married, filing jointly, with a MAGI of $150,000. Their daughter, Emily, is in her sophomore year at a state university, enrolled full-time.
Education expenses paid: $4,500 in tuition and books.
Result: John and Lisa qualify for the full $2,500 AOTC for Emily since their income is below the phase-out threshold and they meet all eligibility requirements.
2. Single Student Paying Their Own Way
Scenario: Marcus is a 21-year-old full-time junior at a community college and is not claimed as a dependent by anyone. He earns $25,000 a year working part-time and pays his own tuition of $3,000.
Result: Marcus qualifies for the AOTC. He can claim a credit of $2,250 (100% of the first $2,000 + 25% of the next $1,000), and potentially get up to $1,000 of that refunded.
3. Divorced Parent Claiming the Dependent
Scenario: Sarah and Mike are divorced. Sarah claims their son, Alex, as a dependent on her tax return. Alex is a full-time freshman at a private university.
Education expenses paid: Sarah pays $5,000 in tuition and books.
MAGI: Sarah earns $70,000.
Result: Sarah can claim the full $2,500 AOTC for Alex, since she claims him as a dependent and paid the expenses, and her income is within the qualifying range.
Key Reminders for Clients
Keep detailed receipts for tuition, books, and required course materials.
Confirm 1098-T accuracy—it must be issued by the educational institution.
Only qualified expenses are eligible—room and board, insurance, and transportation do not count.
Review prior AOTC claims—you can’t exceed four years.
Final Thoughts
The AOTC can offer significant savings for students and families—but only if claimed correctly. As a tax professional, guiding your clients through eligibility and documentation can make a major financial difference, especially with the rising cost of higher education.
Do you have clients with dependents in college or taxpayers paying their own way through school? A quick review of their educational expenses might unlock thousands in savings this tax season.