How come I don't qualify for the American Opportunity Tax Credit?

[widlackis97]

“chantelskinner” is right about the bug in the logic. I should qualify for the AOTC because I meet all the criteria, but TurboTax was saying I didn’t qualify. I was a full-time student in 2018 so I selected “full-time” when I was asked about my enrollment status. It said I didn’t qualify. I changed my selection to “at least half-time” and suddenly I qualify. That makes no sense seeing as full-time is more intensive than half-time, so if half-time qualifies me, full-time definitely should.

[tarantula35]

Correct, there seems to be a bug. To reiterate for those reading this choose "at least half time" instead of "full time"

[clarkheather0]

Yes thank you! This just happened to me as well! I had to change my response from "full time" to the selection that stated "at least half time". I'm so happy I saw your post and suggestion because this is super helpful tax break with school expenses. Phew! I almost didn't get it!

[Student HaNa]

Right! Yet TT says I don't qualify. This is a surprise. I clearly qualify and have claimed it last year with $0 income.  I tried the at least half (I'm full time student), it didn't work in my case still! so frustrating

[SusanY1]

Other issues with the refundable portion of this credit can come into play based on your age.  Generally, students under the age of 24 who still have at least one living parent cannot claim the refundable portion of the credit unless they have wages and those wages are sufficient that they provide more than half of their own support. 

The support the student provides must come from earnings to be eligible for the refundable portion of the credit.  

Occasionally, this section of TurboTax does need to be cleared to work best.  This is particularly true if information has changed since some initial calculations were performed or sometimes due to updates in the software.  This is because this section of the program is searching to find the best option of credits, deductions, and use of other types of funds.  It's one of the more complex areas of the tax code!

Try to reset the section and re-enter only your education data to see if this resolves your issue. 

Here are the steps to do that: 

1. Login to TurboTax.com
2. Click on Tax Tools in the menu on the left side of the program.
3. Next, click on Tools.
4. Click on Delete a Form in the menu that pops up.
5. Delete the education worksheet (may be abbreviated Wks) and any education related forms that you see in the list.  
6. Confirm deletion of these forms on the next screen.
7. Clear browser cache and cookies, close the browser, and return to TurboTax.com to re-enter the data. 

@Student HaNa

[vip2020]

Hi,

I am facing a similar situation. If I select "at least half time", I qualify for the AOTC but not if I select "full time". 

Note - I am a full time student under 24 with unearned income. 

Problem: If I go with "at least half time" , TT drops form 8615 which covers tax for unearned income. I think it does this because one of the criteria for this form is you need to be a "full time" student. I am pretty sure I need to include 8615. 

So, if I go with  full time, I loose the AOTC but keep form 8615.  

if i go with at least half time, I keep the AOTC but TT excludes 8615 which could be a problem

Please help.

[Hal_Al]

@vip2020 

As weird as it sounds, that's the rule: A full time, unmarried,  student, under 24, who does not support himself with earned income, is not eligible for the refundable portion of the AOTC.  Yet, if you're less than full time (but half time or more), and can't be claimed as a dependent, you do qualify.  The logic is that a full time student "can't be" independent. 

The same rule applies to the "kiddie tax" (form 8615). It only applies to students who are dependent full-time students between the ages of 19 and 23, with unearned income. 

So, TurboTax is doing right.  

[Anonymous]

I cannot find confimation of Hal_AI's reasoning on the IRS website. My son's situation is that he supports himself, but primarily through a college savings account, not earned income. So if there is an earned income requirement, then he cannot get the credit. But, again, I cannot find any such requirement on the IRS website. So, Hal or anybody, can you point me to authority for the proposition? Thanks.

[Hal_Al]

Pub 970 page 21

https://www.irs.gov/pub/irs-pdf/p970.pdf

"Refundable Part of Credit
Forty percent of the American opportunity credit is refundable for most taxpayers. However, if you were under age
24 at the end of 2020 and the conditions listed below apply to you, you can't claim any part of the American opportunity credit as a refundable credit on your tax return.
Instead, your allowed credit (figured on Form 8863, Part II)
will be used to reduce your tax as a nonrefundable credit
only.
You don't qualify for a refund if items 1 (a, b, or c), 2,
and 3 below apply to you.
1. You were:
a. Under age 18 at the end of 2020, or
b. Age 18 at the end of 2020 and your earned income (defined below) was less than one-half of
your support (defined below), or
c. Over age 18 and under age 24 at the end of 2020
and a full-time student and your
earned income  was less than
one-half of your support .
2. At least one of your parents was alive at the end of
2020.
3. You are filing a return as single, head of household,
qualifying widow(er), or married filing separately for
2020."

Incidentally, if "college savings account"  refers to a QTP / 529 / ESA that is (most likely)  not self support.  

 The treatment of expenses paid with distributions from Sec. 529 plans and Coverdell ESAs in the support test is uncertain because of the dual nature of these college savings vehicles and a lack of IRS guidance. The consensus among tax experts is that it is parental support, because the parent is the owner of the plan.  It might be helpful, to the  case, to make distributions  to the beneficiary or school, rather than the owner.

https://ttlc.intuit.com/questions/3402602-can-i-claim-money-from-a-529-fund-as-my-supporting-my-22-y...

[Anonymous]

Hal, thanks so much for the very informative reply. I really appreciate it. 🤙