Students and Parents Use the 1098-T for the American Opportunity Tax Credit

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In College Planning & Financial AidLendKey

Taxes are always a certainty, but if you or your family are spending money on education there may be ways to increase a tax refund by claiming educational credits. It’s tax season once again, and while people entering student loan repayment may start claiming interest costs on their taxes, people currently enrolled may have another opportunity to save some money.

American opportunity credit: Originally this program modified the pre-existing Hope credit program, and has now been extended into 2017 with additional features that include more available expense claims. It covers expenses paid towards tuition, certain fees and course materials along with course-related books, supplies and equipment that are not necessarily paid to the educational institution directly.

It can be claimed for four years of post-secondary education, a departure from the Hope credit program that only allowed for two years worth of claims.

Who can officially claim the credit? Parents of undergraduates claimed as dependants on the tax return usually end up using the credit. Generally, eligibility for the claim must include all three of the following requirements:

  • You pay qualified education expenses of higher education
  • You pay the education expenses for an eligible student
  • The eligible student is yourself, your spouse, or your dependent for whom you claim an exemption on your tax return

The maximum annual credit is $2,500 per student: 40% of the credit (up to $1,000) is refundable. Even if no taxes were owed, the person can still claim the credit to create a refund.

Income limitations: Full $2,500 credit is available to individuals with a modified AGI of $80,000 or less, or $160,000 or less for married couples filing a joint return. The credit is phased out for taxpayers with incomes above these levels but is greater than the prior Hope credit program.

Generally speaking, the qualified expenses for the education tax credit include tuition and required fees for attendance at eligible colleges and universities, but also included are technical schools and community colleges. Most schools are qualified, but restrictions may apply. Basically, if you are using money from FAFSA towards college bill payment, that is a sign that it’s a qualified institution.

Check your 1098-T: Colleges record much of these expenses on the form 1098-T, a statement compiled by the institution summarizing the tuition and required fees and sent out to the students annually, usually in February. If you have not yet received yours, check with the school’s bursar or enrollment management office. Usually you can find an answer through the school’s website, so it’s probably fastest to look up online. Additionally, many schools use ACS as a third party electronic processor of 1098-T so you may be referred to their site to get a copy.

What about expenses not listed on the 1098-T, like my computer? A computer, or any other expenditure not listed on the 1098-T would qualify for the credit if the item is needed as a condition of enrollment or attendance at the educational institution.

The following expenses do not qualify:

  • Room and board
  • Transportation
  • Insurance
  • Medical expenses
  • Student fees unless required as a condition of enrollment or attendance
  • Same expenses paid with tax-free educational assistance
  • Same expenses used for any other tax deduction, credit or educational benefit

Specific IRS time frame requirements explain that qualified claims must be either from an academic period that begins in the same taxable year or an academic period that begins in the first three months of the following taxable year. Take a look at the student schedule to confirm when semesters begin.

To learn more about educational tax credits check out IRS.gov and refer detailed questions to a tax professional.



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