This credit offsets what you pay for the first four years of higher education by reducing the amount of income tax you pay. In addition, the credit is partially refundable. This credit provides up to $2,500 per student and up to 40 percent of the credit may be refundable. Graduate students are not eligible for the (AOTC).
The credit is available to individuals whose modified adjusted gross income (MAGI) is $90,000 or less, or $180,000 or less for married couples filing jointly.* The amount you are eligible for varies depending on your income, how much you spent on higher education expenses, and how many eligible students are in your family.
*2017 amounts shown - this is updated every tax year by the IRS.
You can use this credit to offset payment of qualified educational expenses minus the amount of scholarships, grants, and tax-free employer-provided assistance received during the tax year for yourself, your spouse, or someone you claim as a dependent on your tax return.
Qualified Educational Expenses at UChicago include tuition, course fees, study abroad program fees and the student life fee. All other fees are not considered qualified expenses.
The student also must have been enrolled at least half-time for at least one academic period that began during the tax year (or the first 3 months of the subsequent tax year if the qualified expenses were paid in the previous tax year) in an eligible program leading to a degree.
The credit is only available for the first four years of post-secondary education (undergraduate education). If a student progresses from an undergraduate to a graduate program during the tax year and has not claimed the American Opportunity Tax Credit for more than four taxable years, the student can claim the American Opportunity Tax Credit for the entire taxable year.
You must file a federal income tax return to get the credit (even if you aren't required to file a return). If you are claimed as a dependent on someone's tax return, only the person who claims you can apply for the credit. If you are not claimed as a dependent on someone else's return, were under 24-years-old at the end of the tax year and your earned income was less than half of your support, you can claim the credit to reduce any tax you owe. Forty percent of the credit is refundable.
You must have a taxpayer identification number (TIN) by the due date of your return (including extensions) in order to claim the American opportunity credit on either your original or an amended return.
To claim any higher education tax credit, you must report the amount of your qualified expenses (minus the amount of certain scholarships, grants, and tax-free employer-provided assistance received) on IRS Form 8863 - Education Credits with the form 1098-T. For further instructions review the IRS Instructions for the form 1098-T.