What To Know About the American Opportunity Tax Credit

You could receive up to $2,500 for undergraduate college costs

College student doing homework from home on laptop

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The American Opportunity tax credit (AOTC) is a partially refundable credit for undergraduate college education expenses. Congress talked about eliminating some educational tax breaks at the end of 2017, but the AOTC survived. It can still be claimed for the 2022 tax year, the return you file in 2023, if you qualify.

The AOTC is worth up to $2,500 per student for the first $4,000 you spend on qualifying educational expenses on behalf of yourself, your spouse, or your dependents. The maximum amount you can claim is $2,500 multiplied by the number of eligible students in your family.

Key Takeaways

  • The American Opportunity Tax Credit is based on the first $4,000 you spend annually on qualifying educational expenses.
  • The student can be you, your spouse, or your dependent.
  • The maximum credit is $2,500 as of the 2022 tax year (the return you'll file in 2023) and a portion of it is refundable. .
  • This is a phase-out tax credit so you won't qualify for it if you earn too much.

AOTC Phase-Out Thresholds

The AOTC is gradually reduced in a process that's referred to as "phasing out" for single taxpayers with modified adjusted gross incomes (MAGIs) of $80,000 as of the 2022 tax year. Congress sometimes adjusts various phase-outs to keep pace with inflation. This 2022 tax year threshold increases to $160,000 for married taxpayers who file joint returns.

You'll receive less of a credit if your MAGI is more than $80,000, or $160,000 if you're married and filing jointly. The credit isn't available at all to those with MAGIs over $90,000 (single) or $180,000 (married filing jointly). It's phased out entirely at that point.

The Refundable Portion of the Credit

Up to 40% of the AOTC is refundable. The Internal Revenue Service (IRS) will refund up to 40% of what's left over, up to a cap of $1,000, if claiming the credit reduces your tax bill to zero. You can receive a refund of up to $1,000 even if your tax liability is zero when you file your return. This makes the AOTC more valuable than some other educational tax credits and deductions. It can help offset the alternative minimum tax and the self-employment tax, because it's partially refundable.

Calculating the Credit Amount

The AOTC works out to 100% of the first $2,000 you spend on qualifying education expenses, plus 25% of the next $2,000 you spend, for a total possible credit of $2,500.


Use Form 8863 to calculate the exact amount of the tax credit you're entitled to, and attach it to your Form 1040 tax return.

The maximum $2,500 credit is based on $4,000 in qualifying expenses. Your credit will be less if you had less than $4,000 in expenses. For example, it would be $2,375 if you spent $3,500, assuming your MAGI falls below the income phase-out limits.

Qualifying for the American Opportunity Credit

Taxpayers can claim the AOTC for themselves, their spouses, or for their dependents if the student is enrolled at least half time in a college, university, or other accredited post-secondary educational institution. The student must be pursuing a degree or an education credential. Anyone who has been convicted of a felony drug offense is not eligible.


Both the taxpayer claiming the AOTC and the student must have valid Social Security numbers or other tax identification numbers at the time of the due date of the tax return.

It's Only Available for the First Four Years

The American Opportunity Credit is available for the first four years of a student's post-secondary education: the years of education immediately after high school. Students who have already completed four years of college education, or those for whom you have already claimed the AOTC four times on previously filed tax returns, aren't eligible.

You must file Form 8862 with your next tax return to reclaim your eligibility if the IRS disallows your claim for the AOTC.

What Is a Qualifying Education Expense?

Qualifying educational expenses include course materials that are required for enrollment, as well as tuition and some fees. The AOTC is considered somewhat better than other education tax breaks in this respect.

Books, lab supplies, software, and other class course materials can qualify for the AOTC if they're required by the school for enrollment in a course. You can include the cost of a computer if it's required for the student to take a tech-related class, but not if it's used in the general course of their education.

Room and board aren't covered, nor are expenses that you might pay with tax-free education assistance. You can't count the same expense twice for more than one educational tax credit or deduction.

Comparing the AOTC to Other Tax Breaks 

The lifetime learning credit (LLC) is available for any post-secondary education, including graduate school or undergraduate education beyond four years. You can claim it for any course load. The student doesn't have to be enrolled at least half time. But you won't receive any cash back after it erases your tax liability because it's not refundable, and you can't include any costs other than tuition.

Frequently Asked Questions (FAQs)

Can I get AOTC credits for a master's degree?

Generally, no. The AOTC applies only to the first four years of education after high school graduation. But any study in the remaining time up to four years could be covered if you happen to complete an undergraduate degree in less than four years.

Is the AOTC different for every state?

The AOTC is a federal benefit, so it's the same amount across the board in every state.

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  1. IRS. "Education Credits: Questions and Answers."

  2. IRS. "American Opportunity Tax Credit."

  3. IRS. "Publication 970 Tax Benefits for Education." Pages 11-12.

  4. Congressional Research Service. "The American Opportunity Tax Credit: Overview, Analysis, and Policy Options." Page 3.

  5. IRS. "American Opportunity Tax Credit: Questions and Answers."

  6. Congressional Research Service. "The American Opportunity Tax Credit: Overview, Analysis, and Policy Options." Page 4.

  7. IRS. "Compare Education Credits and Tuition and Fees Deduction."

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