Tax Credit for College Students

As the new college year begins, students should be aware that they may be eligible for the American Opportunity Tax Credit (AOTC), a valuable benefit designed to help offset the cost of higher education. This credit can provide up to $2,500 per eligible student for qualified education expenses during the first four years of college.

To qualify for the AOTC, the student must:

1. Be pursuing a degree or recognized education credential.

2. Be enrolled at least half-time for at least one academic period in the tax year.

3. Have not completed the first four years of higher education by the start of the tax year.

4. Have not claimed the AOTC for more than four tax years.

5. Not have a felony drug conviction by the end of the tax year.

To claim the credit, the student (or their family) must receive Form 1098-T from their college, typically issued by January 31. This form is key to determining the amount of credit you're eligible for. However, there are income limits—if the student's adjusted gross income exceeds $80,000, they do not qualify for the AOTC.

It's crucial to carefully review the eligibility criteria and keep thorough documentation, including Form 1098-T and other records used to calculate the credit. In the event of an IRS audit, failing to provide proper documentation could result in having to repay the credit with interest, face penalties, or even be banned from claiming the credit in the future.

This credit can offer significant financial relief for students, helping cover the rising costs of a college education. For more information, please contact the professionals at The Center for Financial, Legal, & Tax Planning Inc., at (618) 997-3436.