My son started college in Fall 2021. He received two checks in the amount of $1000 each from the school as HEERF 3 refunds in 2021. My understanding is that the money is not taxable, so I have NOT entered the amount anywhere in our tax returns. And then, Turbotax applied AOTC (American Opportunity Tax Credit) to our tax returns. As far as our income goes, we would qualify for AOTC, but can you claim both?
My questions are:
1) Should I report $2,000 somewhere in our returns, maybe under scholarships/grants? Or deduct that amount from the tuition?
2) With the $2000 HEERF 3 money already given, are we still eligible for the ATOC?
Yes, you should deduct the amount from the tuition you are reporting. You should only report education expenses you paid for out of pocket. And yes, you can take the American Opportunity Tax Credit even if you have received scholarships or tax-free income as long as that free money did not cover all of your expenses and you otherwise met the requirements.
Who is eligible to take the American Opportunity Tax Credit? Enter all of your son's education expenses in the Education section and answer the follow-up questions. TurboTax will determine the amount of credit you qualify for. Generally speaking, the IRS only lets you take one education credit or deduction. If you qualify for two or more education credits or deductions, the TurboTax Education Optimizer picks the one that gives you the biggest tax break.
Yes, you should deduct the amount from the tuition you are reporting. You should only report education expenses you paid for out of pocket. And yes, you can take the American Opportunity Tax Credit even if you have received scholarships or tax-free income as long as that free money did not cover all of your expenses and you otherwise met the requirements.
Who is eligible to take the American Opportunity Tax Credit? Enter all of your son's education expenses in the Education section and answer the follow-up questions. TurboTax will determine the amount of credit you qualify for. Generally speaking, the IRS only lets you take one education credit or deduction. If you qualify for two or more education credits or deductions, the TurboTax Education Optimizer picks the one that gives you the biggest tax break.
Thank you, Dawn. So should I deduct $2,000 from the tuition paid, or report as scholarships/grants? Does it matter which?
Since the school sent the refund checks, you may want to ensure that the amount in Box 1 of your son's 1098-T is not already reduced by $2,000. If it has not, you can include it as other scholarships or grants: