Lana Oconnell
International students can claim tax credits to cover the costs of higher education in the US. The American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC) are two tax credits that can help international students with their education expenses. These credits can be used to offset costs such as tuition, fees, course materials, and other qualifying expenses. To be eligible for these credits, students must meet certain requirements, such as being enrolled at least half-time in a degree program and not having any felony drug convictions. By taking advantage of these tax credits, international students can reduce their financial burden and make their education more affordable.
| Characteristics | Values |
|---|---|
| Name of Tax Credit | American Opportunity Tax Credit (AOTC) |
| Who is eligible | Students enrolled at least half-time in a program leading toward a degree, certificate, or other recognized educational credential for at least one academic period during the tax year |
| Requirements | No felony drug convictions at the end of the tax year, not have claimed the AOTC for more than four years |
| Amount | Up to $2,500 per student each year for the first four years of higher education |
| Qualifying Expenses | Tuition, fees, course materials, and other enrollment expenses |
| Form | 1098-T, Tuition Statement |
| Additional Information | The amount of the credit that can be claimed begins to phase out if the income exceeds $80,000 ($160,000 for joint returns) |
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What You'll Learn
Claiming the American Opportunity Tax Credit (AOTC)
The American Opportunity Tax Credit (AOTC) is a credit for qualified education expenses paid for an eligible student for the first four years of higher education. The AOTC can help pay up to $2,500 for tuition and other qualifying expenses per student each year on your tax return. The credit covers 100% of the first $2,000 in adjusted qualified education expenses paid and 25% of any excess beyond that, up to a cap of $500. Thus, the maximum amount you can claim per student each year is $2,500.
To be eligible for the AOTC, a student must be enrolled at least half-time in a program leading toward a degree, certificate, or other recognised educational credential for at least one academic period during the tax year. The student must not have completed the first four years of post-secondary education at the beginning of the tax year and must not have claimed (or had someone else claim) the AOTC for more than four years. Additionally, the student must not have been convicted of a federal or state felony drug offence at the end of the tax year.
To claim the AOTC, you must complete Form 8863 and attach the completed form to your tax return. You will also need to include the school's Employer Identification Number on this form. Generally, students receive a Form 1098-T, Tuition Statement, from their school by January 31, which will help you figure out your credit. However, if you did not receive this form, you may still be eligible to claim the credit. You will need to show that you or a dependent were enrolled at an eligible educational institution and can substantiate the payment of qualified tuition and related expenses.
It is important to keep in mind that the AOTC has income limits. To claim the full credit, your modified adjusted gross income (MAGI) must be $80,000 or less ($160,000 or less for married filing jointly). You will receive a reduced amount of the credit if your MAGI is over $80,000 but less than $90,000 ($160,000 but less than $180,000 for married filing jointly). You cannot claim the credit if your MAGI exceeds $90,000 ($180,000 for joint filers).
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Who is eligible for AOTC
The American Opportunity Tax Credit (AOTC) is a tax credit for qualified education expenses associated with the first four years of a student's postsecondary education. To be eligible for the AOTC, you must meet the following requirements:
The eligible student must be:
- Yourself, your spouse, or a dependent you claim on your tax return.
- Taking courses toward a degree or some other recognized education qualification.
- Enrolled at least half-time for at least one academic period beginning in the tax year.
- Pursuing a degree or other recognized postsecondary education credential.
- Enrolled at an eligible educational institution, which can include foreign educational institutions.
- Not have completed the first four years of higher education at the start of the tax year.
- Not have claimed the AOTC for more than four tax years.
The taxpayer must:
- Pay qualified education expenses for higher education.
- Have a modified adjusted gross income (MAGI) of $80,000 or less ($160,000 or less for married filing jointly).
- Have received Form 1098-T, Tuition Statement, from an eligible educational institution, whether domestic or foreign.
- Complete Form 8863 and attach the completed form to your tax return.
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How to check if you're enrolled at an eligible institution
To check if you are enrolled at an eligible institution, you must first ensure that you are an eligible student. An eligible student is one who is pursuing a degree or other recognised postsecondary education credential and is enrolled at least half-time at an eligible educational institution.
Eligible educational institutions include any postsecondary educational institution (including foreign educational institutions) eligible to participate in FSA programs. U.S. taxpayers may claim the American Opportunity Tax Credit (AOTC) on their U.S. federal income tax return for qualified education expenses paid to an eligible educational institution if certain requirements are met.
To be eligible for the AOTC, the educational institution must provide a Form 1098-T, Tuition Statement, to the student and the IRS. This form reports the amounts paid for qualified tuition and related expenses, which may be useful in calculating the amount of allowable education tax credits. However, there are exceptions where eligible educational institutions are not required to provide this form, such as for nonresident alien students. In such cases, students may still be eligible to claim a credit by providing proof of enrolment at an eligible educational institution and substantiating the payment of qualified tuition and related expenses.
You can check if your school is on the U.S. Department of Education's Database of Accredited Post Secondary Institutions and Programs (DAPIP) or the Federal Student Loan Program list to determine if it is an eligible institution. Additionally, foreign educational institutions that do not have an Employer Identification Number (EIN) issued by the IRS may request one by completing and submitting Form SS-4.
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What expenses qualify for AOTC
The American Opportunity Tax Credit (AOTC) can help pay for tuition and other qualifying expenses per student each year for the first four years of higher education. The maximum annual credit is $2,500 per eligible student. The credit is 100% of the first $2,000 of qualified education expenses and 25% of the next $2,000.
To qualify for the AOTC, you must be enrolled at an eligible educational institution for at least one academic period (a semester, trimester, quarter, summer school, etc.). You don’t need to be working towards a degree, but you must be pursuing a degree or recognized credential, be enrolled at least half-time, and have no felony drug convictions.
Expenses that qualify for the AOTC include:
- Tuition fees and other enrollment expenses
- Course materials such as books and supplies (even if not paid to the school)
- Student activity fees (e.g. a fee to fund on-campus organizations and activities)
- Computers, if needed for attendance at the educational institution
Expenses that do not qualify for the AOTC include expenses for sports, games, hobbies, or non-credit courses (unless the course or activity is part of the student’s degree program). Additionally, you cannot claim a credit for education expenses paid with tax-free funds.
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How to calculate your credit amount
The American Opportunity Tax Credit (AOTC) helps cover the cost of higher education expenses for tuition, certain fees, and course materials for the first four years. The AOTC can help pay up to $2,500 for tuition and other qualifying expenses per student each year on your tax return. The credit amount is 100% of the first $2,000 of qualified education expenses and 25% of the next $2,000 of qualified education expenses. The maximum amount you can claim is $2,500. The amount you can claim begins to phase out if your income exceeds $80,000 ($160,000 for joint returns).
To be eligible for the AOTC, you must be pursuing a degree or recognized credential, be enrolled at least half-time for one academic period during the tax year, and have no felony drug convictions. You can claim the AOTC for up to four tax years. Once you have claimed the credit for four years, it is no longer available for that student. However, you can claim it again for another student, such as a spouse or dependent.
To claim the AOTC, use Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits). You will also need to include the school's Employer Identification Number on this form. In addition, most students are required to have received a Form 1098-T, Tuition Statement, from an eligible educational institution. This form reports the amounts paid for qualified tuition and related expenses and is useful in calculating the amount of the allowable education tax credits. However, there are some exceptions, and nonresident alien students are not required to receive this form unless they request it.
Another education tax deduction is the Lifetime Learning Credit. This credit provides a dollar-for-dollar credit for qualifying education expenses, but the rules for eligibility and credit amounts differ from the AOTC. With the Lifetime Learning Credit, you can claim a credit of 20% of your adjusted qualified education expenses up to a maximum credit of $2,000. This credit is not refundable.
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Frequently asked questions
The AOTC is a tax credit that helps to pay for tuition and other qualifying expenses per student each year during the first four years of higher education.
The AOTC can help pay up to $2,500 for tuition and other qualifying expenses per student each year.
To be eligible for the AOTC, you must be pursuing a degree or recognized credential, be enrolled at least half-time for one academic period during the tax year, and have no felony drug convictions.
To claim the AOTC, use Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits). Additionally, you must include the school's Employer Identification Number on this form.
The AOTC is allowed for expenses for course-related books, supplies, and equipment that are not necessarily paid to the educational institution, whereas the LLC does not cover these expenses. Additionally, the AOTC has a higher maximum credit and refundable portion, making it better for undergraduate students.
