Turbo tax is telling me I don't get the American Opportunity credit but I am only in my 4th year of college and I was under the impression I should get it

[ThomasM125]

@droodhall TurboTax does not know what your total support is, but you are asked when you fill out the personal information in TurboTax if anyone else can claim you as a dependent on their tax return, which would mean that you do not provide over half of your support if someone else can claim you.

[ThomasM125]

@droodhall TurboTax does not know what your total support is, but you are asked when you fill out the personal information in TurboTax if anyone else can claim you as a dependent on their tax return, which would mean that you do not provide over half of your support if someone else can claim you.

[Rembrandt]

@info28 @wildbeest55 Thank you SO MUCH for posting "There is a bug in the logic" and "Turbo tax needs to change their system for the american opportunity credit.", highlighting that it is a software issue, not a tax issue.  

I've been going round and round on this trying to figure out which of the "four" options shown by Turbo Tax for why I don't qualify is causing the problem, since I clearly qualified for all of those situations.  So, taking your "5th option for disqualification" discovery, that a full-time student does NOT qualify but a half-time student does, I went back to my profile and changing from "full-time" to "at least half-time" and that made the difference.

The most shocking part of this flaw is that IN THREE YEARS IT STILL HASN'T BEEN FIXED.    It's August 2022 (compared to your 2019 post), filing for tax year 2021.  This flaw in not getting the credit for which I strongly felt I was eligible is the SOLE reason I filed an extension.  I wonder how many people just filed without getting the credit - as I was so close to doing to just be done with it!  But thankfully decided to put more time into it.

[NCperson]

@Rembrandt - I am intrigued that this may be a bug.... as AOTC can get quite confusing

if you are a dependent of someone else (normally that would be your parents), one of the criteria for AOTC is being 'at least a half time student' and that can be found on Form 1098-T in Box 8.  The person who you are a dependent of (normally your parents) would claim AOTC - not you. That is the way AOTC works if you are claimed by someone else. 

But  the criteria is different if YOU, the student, are claiming AOTC and you are under 24 years old and  not claimed by someone else.  The eligibility bar is much higher

you are NOT eligible for the 'refundable credit' portion of AOTC (which is up to $1000) if 

1) one of these three apply 

• a) you are under the age of 18
• b) age 18 at the end of the year and your earned income was less than 1/2 of your support
• c) a full time student over 18 and under 24 and your earned income was less than 1/2 of your support (a full time student is defined as being in college during any part of 5 calendar months in 2021)

AND

2) at least one parent is alive 

AND 

3) you are not filing Married - Filing Joint 

if you meet all three criteria you are NOT eligible for the up to $1,000 refundable credit; however, you are still eligible for the up to $2500 non-refundable credit (but that requires earning more than the standard deduction to be eligible for the 1st dollar of tax credit of the $1500  - a different story if you want a fuller explanaton. )

 So I am curious

1) how old were you on 12/31/21?

2) are you being claimed by anyone else? yes or no?

3) were you in college for any 5 calendar months (which is the definition of a full time student) in 2021? 

4) Is Box 8 checked on Form 1098-T?

5) what is your filing status?  

6) was your earned income less than 1/2 your support? (this is hard to say "no" to unless you had a large income to cover 1/2 your expenses, including college expenses without consideration of scholarship money) 

7) is at least one of your parents alive? 

There are plenty of cases where parents are high wage earners and not eligible for AOTC.  But the IRS was too smart and came up with criteria to make sure their children who may file their own tax return were ineligible as well (at least inelgible for the refundable $1000). 

So i don't see the bug.  What I see may be a misunderstanding of what constitutes a 'full time' student.  If you are one you have to answer yes, you can't intentionally answer 'no' just to get the refundable credit - that would be lying to the IRS to get money someone was not eligible for; some may use a stronger word: 'fraud'. 

@Hal_Al- as the Community expert on these AOTC matters, can you please review this?  I think it's a misunderstand of how AOTC works and not a TT bug.  Your response is much valued and appreciated.  

[Hal_Al]

@Rembrandt  There is no bug. That's the rules: a half time+, non-dependent, student qualifes for the refundable portion of the AOTC but some full time students do not.

A full time, unmarried student, under age 24, even if you don't qualify as a dependent, is only eligible for the refundable portion of the American Opportunity Credit if he supports himself by working, or is an orphan. You cannot be supporting yourself on parental support, 529 plans or student loans & grants.   It is usually best if the parent claims that credit. 

From the Pubs and form 8863 instructions: He does not qualify for the (up to) $1,000 refundable portion of the American Opportunity Credit if items 1, 2, and 3 below apply to him. 

1. He was:
.....a. Under age 18 at the end of 2021, or 
......b. Age 18 at the end of 2021 and his earned income was less than one-half of his support, or 
......c. A full-time student over age 18 and under age 24 at the end of 2021 and his earned income was less than one-half of his support .2. At least one of his parents was alive at the end of 2021.
3. He is not filing a joint return with his spouse for 2021.

When you indicate that you are a full time student, under 24, in the personal info section, Turbotax (TT) will generate the earned income and living parent questions , in the personal info interview. 

Why are the rules that way? As @NCperson said, It's to keep ineligible high income parents from switching the refundable credit to the student. Note the similarity to the kiddie tax rules.  If the student (even full time) has a tax liability, he is allowed to claim the non refundable AOTC. In that case, the refundable portion becomes non-refundable.  That is, if the student has a least a $2500 tax liability, he gets the full $2500 AOTC. The parent must forgo claiming the student as a dependent (and the $500 other dependent credit).

Yep, it's complicated. TT can handle it, but you have to read and answer the interview questions carefully. 

[NCperson]

I also reviewed what @droodhall and @ThomasM125 wrote earlier this year.  

@droodhall asks "how does Turbotax determine what this student's total support is?"

and then @ThomasM125  states "if anyone else can claim you as a dependent on their tax return, which would mean that you do not provide over half of your support if someone else can claim you."

the response is misleading and it doesn't contemplate how TT determines that you do not provide over half of your support if there is no one who can claim you!  

First, AOTC is somewhat unique as the qualifications are based on whether or not someone else actually claimed you.  Whether you 'can' be claimed by someone else is a moot point for AOTC.  

if you "can" be claimed by someone else, TT will ask you whether you were actually claimed.  This is required to determine your AOTC eligibility.

• if you were actually claimed  by someone else,  you are not eligible for AOTC (your parents or whomever claimed you may be eligible).
• If you were not claimed by anyone else, you MAY BE eligible for AOTC.

If you are not claimed by anyone else (and depending on your age - under 24 years old - and filing status -anything but MFJ) , TT will ASK YOU if you provided over half your support.  It does NOT make any assumptions or inferences about your earned income based on the "can someone else claim you" question.   

[Hal_Al]

Once you indicate that you can and will be claimed as a dependent, TurboTax (TT) doesn't ask if you provided more than half your own support.  However, if you indicate that you cannot be claimed as a dependent (or you can be claimed but won't be) and your birthday indicates you are under 24 and you indicate you are a  student, TT generates the question: did more than half your support come from your earned income. 

[Rembrandt]

@NCperson @Hal_Al This is confusing as I think I qualify under the IRS rules I looked at, and I would also think I qualify for the spirit/intentions of this credit, but you suggest that I do not.  Thank you for taking the time to respond and I wanted to do the same for others who may be in similar situations.  So, to answer your questions:

• I am between 18 and 24 and was off at college. 
• My parents are alive but realized that they did not send me any financial support in 2021 so they told me they were not claiming me as a dependent and I should claim myself when I do my taxes. I am single.
• I dropped some classes so only ended up taking 9 hours, which is NOT considered full time at my school.  But yes, I was in college for 5 months - and I started out full time so I thought of myself as a full time student. Only for taxes did I realize that technically I wasn't.  (You may remember, Spring 2021 - and Fall 2020 - was during Covid lockdown - at schools. I was new to living on my own and I did not do well at all with the forced isolation, living in a room by myself for 9 months and basically never being able to leave (classes online) except to eat, again by myself per the rules of the facility.)
• Yes, box 8 is checked on my 1098-T

So, do I qualify?  From the IRS:

Who is an eligible student for AOTC?

To be eligible for AOTC, the student must:

• Be pursuing a degree or other recognized education credential - YES
• Be enrolled at least half time for at least one academic period* beginning in the tax year - YES
• Not have finished the first four years of higher education at the beginning of the tax year - YES
• Not have claimed the AOTC or the former Hope credit for more than four tax years - YES
• Not have a felony drug conviction at the end of the tax year - YES

And I certainly don't exceed the income limits further down the page.

Regarding the TurboTax explanation under AOTC:

You cannot claim the American opportunity credit if:
- your filing status is married filing separately
- you're claimed as a dependent by another taxpayer
- your modified adjusted gross income is $90,000 or more ($180,000 or more in the case of a joint return)
- you or anyone else claims the lifetime learning credit for the same student in 2021.

I don't fail under any of these.  So, I couldn't figure out why I wasn't eligible and Googled to see if there was a software problem, finding this link.  Based on your comments, the issue must be over the definition of full time student and another issue you bring up is if my earned income was less than half my support. 

My earned income during 2021 was less than half my support, but the rest of my support was savings from earnings in previous years.  Again, my parents did not provide me any financial support in 2021, but my earnings during 2021 still provided less than half.  I answered the question honestly.  But you seem to be saying that the IRS allows the credit if I earned the money in the same year, but not if I earned the money in prior years.  That doesn't seem right.

After reading this post - and seeing the issue others found with full time - I went back and looked at it and thought about it more carefully.  Based on my "Covid" class drops, technically I was not a full-time student.  But furthermore, for those others in this post who selected the same, someone who is full-time is "At least half-time".  So that is not an incorrect answer.

I think I am OK given my actual status change.  But I certainly don't want to risk doing anything wrong.

[Hal_Al]

@Rembrandt  You are eligible for the refundable portion of the AOTC, becasue you were not a full time student.  In the personal info section, of TT, be sure you did not check the  Full time student box.  

Also, do not check the box that says you can be claimed as a dependent.  The same 5 month full time student rule disqualifies you as a dependent, if you parents didn't provide more than half your support.

You will not get the earned income-50% support question.

[RobMin]

You have to select "I am at least halftime student" rather than "I am a fulltime student" in the beginning personal info section.  TT kept telling me i was not eligible.  I changed that setting and the credit popped up (after two hours of suffering).