The American Opportunity Credit Credit is a federal income tax credit for qualified tuition and expenses of eligible post-secondary schools. The scholarship is available on a per student basis, for each student listed as an exemption on the taxpayer’s federal income tax return (i.e., the taxpayer, the taxpayer’s spouse, and eligible dependents), who was enrolled at least part time in a certificate or degree program in 2012.

What is an “eligible dependent”?

A taxpayer may claim a dependency exemption for his/her unmarried child if:
1) the taxpayer supplies more than half of the child’s support for the taxable year, and
2) the child is under age 19 or a full-time student under age 24.

This credit is available only for the first 4 years of postsecondary education.

How much credit can a taxpayer claim?

The credit amount claimed is equal to 100% of the first $2,000 spent on qualified tuition and expenses, plus 25% of the next $2,000 of qualified tuition and expenses, to a maximum of $2,500. The Opportunity Credit is allowed to offset a taxpayer's entire federal income tax liability, including and AMT. In addition, up to 40% of the Opportunity Credit may be refundable, meaning a taxpayer could receive a refund even if no taxes had been withheld or no estimated payments were made.

This credit is available only for 4 tax years per eligible student.

How does taxpayer income level affect the American Opportunity Credit?

The American Opportunity Credit is available to taxpayers who have modified gross income of less than $80,000 or $160,000 if married filing jointly.

What is Modified Adjusted Gross Income?

MAGI is a taxpayer’s adjusted gross income plus any amount excluded from gross income under Sections 911, 931, or 933. These sections of the tax code pertain to income earned abroad, including Puerto Rico.

How does a taxpayer claim the American Opportunity Credit?

To claim the the American Opportunity Credit, a taxpayer must file IRS Form 8863 with their federal income tax return.

Salisbury University is providing this information as a service to its students, but please keep in mind it is not an authority on taxation. Therefore, the University is not responsible for any misrepresentation of the IRS regulations. You should consult a tax advisor to determine if you qualify for the credit or for any other related questions.
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