What is the American Opportunity Credit?

Higher education can be a worthy, albeit costly, pursuit. The American Opportunity Tax Credit (AOTC) is one way to help make college more affordable. For tax paying students and parents alike, the AOTC allows a maximum credit of $2,500 of the cost of qualified tuition, fees, and course materials paid during the tax year per student.

What’s more, the American Opportunity Credit is a partially refundable education tax credit. That means if you’ve offset your applicable taxes and there’s some of the credit left over, you could receive money back as a refund. We’ll get into those specifics a little later.

Have other student tax filing questions? Be sure to visit our Tax Guide for College Students and find out about student forms that can be filed for free. 

American Opportunity Credit rules

On top of qualified tuition and fees, books and supplies (including a computer if it’s required for enrollment or attendance) count as eligible school expenses. However, the same expenses may not be used to claim any of the other education tax credits, deductions, or exclusions.

Instead of $2,500 of qualified education expenses applying to the credit directly, the American Opportunity Credit rules work slightly differently. The expense calculations are broken into two parts.

Here’s what that looks like. If you’re an eligible student, the AOTC is a credit of:

• Up to 100% of the first $2,000 of qualified expenses
• Up to 25% of the next $2,000 of qualified expenses

As mentioned above, the American Opportunity Tax Credit is partially refundable. If you don’t have a tax liability for the year, you can get up to 40% ($1,000) back.

Let’s review an example calculation to see this in action:

Steve and Carol pay $8,000 in qualified education expenses during the tax year for their daughter’s junior year in college. Their tax liability for the tax year is $1,000. Under the American Opportunity Credit, they qualify for a credit of $2,500, $1,000 of which is refundable.

Kiddie tax exception –  If the AOTC is claimed by a child who is subject to the kiddie tax, the credit is not refundable. Note that the student doesn’t have to actually pay kiddie tax to be considered subject to the kiddie tax. A student with no unearned income can still be subject to the kiddie tax rules.

American Opportunity Credit phaseout – If your modified adjusted gross income (MAGI) is more than $80,000 ($160,000 if you’re married filing jointly), your eligibility will start to “phase out” — meaning you may only qualify for a partial credit or none at all. You cannot claim the credit if your MAGI is over $90,000 ($180,000 if you’re married filing jointly).

American Opportunity Credit requirements and eligibility

To claim the American Opportunity Tax Credit, you’ll have to meet several requirements.

Enrollment – You must be enrolled for at least one academic period that begins in the tax year in which you are claiming the AOTC. For 2023, an academic period that began during the first three months of 2024 is treated as beginning in 2023 if you paid qualified education expenses in 2023 for that academic period. You also must be:

• Enrolled in an eligible educational institution at least part time
• Enrolled in a post-secondary undergraduate program leading to one of these:
  • Degree
  • Certificate
  • Other recognized educational credential

The school decides what qualifies as full-time or half-time enrollment. Although the number can be higher or lower, most educational institutions see 12 credit hours in one semester as full-time status.

However, the standard for half-time workload cannot be lower than the standard established by the Department of Education.

Years of study – The student must not have completed the first four years of post-secondary education as of the beginning of the taxable year. This definition is also determined by the school.

Claiming the AOTC previously – You can only claim the American Opportunity Tax Credit four times per student. The Hope Credit, a predecessor of the American Opportunity Credit available through 2009, will also count in the four available uses of the American Opportunity Credit.

AOTC qualifying expenses

Tuition, enrollment fees, and related expenses to the program of study typically count as a qualified educational expense for the AOTC. This includes the cost of things like:

• Books
• Supplies
• Equipment
• Student activity fees (if paid to the institution as a condition of enrollment or attendance)

The tax credit does not cover higher education expenses associated with:

• Room and board
• Transportation
• Medical insurance

You are allowed to pay for qualified education expenses with borrowed funds like student loans or credit cards. However, you can’t claim the credit if you paid for qualifying expenses with scholarships, federal grants (like the Pell Grant), employer-provided assistance, or funds from a 529 savings plan — unless the scholarship, grant, assistance, or 529 interest are treated as taxable income.

What can affect your eligibility for the American Opportunity Credit?

There are a few situations which may exclude you from taking the credit. You can’t take the AOTC if any of the following apply:

• Your filing status is married filing separately (MFS).
• You are claimed as a dependent on another person’s tax return (such as the taxpayer’s parents’ return).
• You (or your spouse) were a nonresident alien for any part of the year and the nonresident alien did not elect to be treated as a resident alien for tax purposes.
• You used the same expenses to claim the Lifetime Learning Credit.
• You used the same expenses to treat a scholarship, grant, or employer-provided educational assistance as tax-free.
• You received a refund of all expenses.
• The eligible student did not have an SSN or ITIN on or before the due date for filing the tax return for the tax year.

Tax tip: Lifetime Learning Credit may be another option.

If any of the above has disqualified you, don’t despair. The Lifetime Learning Credit may be available to students who don’t meet American Opportunity Credit eligibility. This can include students who are enrolled for college credit less than half-time or have already completed four years of post-secondary education.

American Opportunity Credit tax forms

If you paid qualified educational expenses during a specific tax year to an eligible institution, then you will receive Form 1098-T. Colleges are required to send the tax form by January 31 each year, so you should receive it shortly after that. Some colleges may make it available to you electronically.

The Internal Revenue Service (IRS) requires that you complete tax form 8863 and file it with Form 1040 when filing your annual income tax return.

The American Opportunity Credit vs. The Hope Credit

The Hope Credit was a nonrefundable credit which qualifying students could claim for their first two years of post-secondary education. The American Opportunity Tax Credit replaced the Hope Credit in tax year 2009. By replacing the previous education credit, the AOTC expanded the tax benefits available to students paying for higher education and its related expenses.

Get help claiming the American Opportunity Credit

Whether you choose to file with a tax pro or file with H&R Block Free Online, we can help you file the forms related to the American Opportunity Credit.