Don’t overlook tax benefits as you make plans to pay for college. Many families will qualify for the AOTC, a refundable credit of up to $2,500 that can be taken for up to 4 years ($10,000).
This is an outdated but easy to read article about possible tax benefits for college.
Here is the IRS website for the most up to date information and $ figures.
@kelsmom @Mwfan1921 is there a more recent article about AOTC than 2018?
Turbo tax figures all this out - and yea even with substantial income you can get something back.
This year my AGI went too high.
One of the things that I got out of it, I think I understood, was that if you pay 100% out of your 529 you won’t qualify. So you want to make sure that you pay at least $4000 from another source, either cash you have outside of 529, or with the federal loans.
So that is helpful to know before you start making tuition payments.
It is also possible for students to benefit from the AOTC themselves, sometimes it is not refundable but can still reduce taxes owed. Mine had paid coop/internships and contributed to their education expenses.
According to the IRS link above, even students that provide less than half their support can qualify. This was the result I got from the IRS link above when going through the prompts for a full-time student that contributes (could be a loan) to their qualified education expenses. It didn’t ask about parent incomes, but I did put in not claimed on anyone else’s return:
Am I eligible to claim an education credit?
You are eligible to claim the American Opportunity Credit.
However, you cannot claim any part of the American Opportunity Credit as a refundable credit on your tax return since:
Instead, your allowed credit will be used to reduce your tax as a non-refundable credit only.
You can claim qualified education expenses which are:
You are eligible to claim the Lifetime Learning Credit.
You can claim qualified education expenses which are:
If you choose to claim the Lifetime Learning Credit, your credit is limited by your tax liability and other non-refundable credits.
As you qualify to claim more than one education benefit, you must choose which education benefit to claim.
Complete Form 8863, Education Credits, to calculate the education credit and attach it to your tax return.
Yes, I think for 2022 it began to phase out with AGI over $160K and was completely lost at $180K (for married couples filing jointly, less for other filing statuses). If you’re close you might be able to plan ahead now to squeeze a bit more of the credit for 2023.
No clue. I’ve taken more than $4k and got the money.
But honestly I don’t follow these rules.
This link has a ton of information, straight from the IRS: Education Credits AOTC LLC | Internal Revenue Service.
This is a commonly held belief but is not accurate.
One can pay all expenses from a 529 and still claim the AOTC. The net result is simply a tax, but not penalty, on the earnings portion of 4k of the 529 distribution. The IRS explains how to coordinate these benefits in the QTP section of Pub 970, which is the go to resource for education tax benefits:
Thank you! Understanding that would have helped me in 2015. Although attempting to work through the worksheets for next year we will probably still pay out of the 529 at least $2000 short of the QEE to save the additional steps.