American Opportunity Tax Credit

[goodie]

Last year I had two kids in college that I paid for.  I received $2500 for each of them (for a total of $5000) with the American Opportunity Tax Credit.  This year, I now have three kids in college that I pay for.  I received $2500 AOTC for each of the first two kids, but then when I added the third child, it reduced the credit for each child to about $2350 each.  My income is not very high and each of the kids qualify separately for the full AOTC.  Can you explain why it was reduced and I didn't get the full credit.  I thought I would get a tax credit of $7500 for all three kids, but it was more like $7050.

Thank you!

[Vanessa A]

The AOTC is only partially refundable. This means if your do not have enough tax liability your credit will be reduced.  The refundable portion is $1,000, the other $1,500 is the part that would be reduced. If you look at form 8863, you will see line 8 will show you the refundable portion and line 19 will show you the nonrefundable portion. 

American Opportunity Tax Credit.

• Available for the first 4 years of college
• Max amount is $2,500 per student
• Partially refundable credit meaning if your tax liability is $0, 40% (up to $1,000) is refundable
• Be enrolled in a degree or credential seeking program
• Not have a felony drug conviction
• Be enrolled at least half time
• cannot be claimed as a dependent on anyone else's return.