How does employer tuition reimbursement affect the American Opportunity Tax Credit?

[nickbarrett141]

I had tuition and related expenses totaling approximately $1500 in 2020. In January of 2021 my employer gave me a check reimbursing me for $1100 of those expenses.

[ColeenD3]

You can't claim expenses that are reimbursed. You didn't pay them.

[Hal_Al]

That means you can use $400* (1500-1100) to claim the AOTC.  There is 4 time limit to claiming the AOTC, so rather than use it for $400, you may want to save it to use for the maximum $2500 (based on $4000 expenses) later.  The AOTC can not be used for grad school.

*By law your employer can only give you $5250 maximum, tax free, tuition assistance.  If your $1100 was tax free, you can not claimed the AOTC base on it.  But if your employer treated it as taxable income, you can claim the AOTC based on it. 

[nickbarrett141]

So I just got of the phone with a live tax expert from turbo tax. They advised me that the 1100 expense would be relevant to my 2021 return, since the check was cut in 2021. They also said that I could claim the full amount I paid for tuition and qualified expenses in 2020 since I paid for them in 2020 and wasn’t reimbursed in 2020.

[nickbarrett141]

So I just got of the phone with a live tax expert from turbo tax. They advised me that the 1100 expense would be relevant to my 2021 return, since the check was cut in 2021. They also said that I could claim the full amount I paid for tuition and qualified expenses in 2020 since I paid for them in 2020 and wasn’t reimbursed in 2020

[Hal_Al]

"They also said that I could claim the full amount I paid for tuition and qualified expenses in 2020 since I paid for them in 2020 and wasn’t reimbursed in 2020". 

Yes, but not exactly.  Usually, you may not claim a tuition credit for expenses paid (or reimbursed ) by tax free money (e.g. scholarships, grants, VA benefits or employer reimbursement). 

But since the reimbursement was received in a different year, you have a choice (actually a tax loop hole). You can claim nothing on your 2020 tax return, since it will be reimbursed in 2021. Or, you can claim a tuition credit, based on that money, because you are out-of-pocket.  But then, you have to report the reimbursement from your employer as taxable income on your 2021 tax return.

It should increase your 2020 refund by $1100 (assuming you have that much tax liability), but should only result in $132 additional tax next year (assuming 12% tax bracket).  See previous comment about deferring the AOTC.