Hello all,
Another thread brought up the tax credit ($2,500?) that parents can get for paying tuition to college (up to $4,000 in tuition). Does this get factored into available monies to be spent by the family on college? On FAFSA or CSS profile? They obviously know this exists in the tax code. Do colleges want this money also?
No.
The non-refundable part of the AOTC, and the LLC, is reported on FAFSA line 93.a. (for parents), and my guess is that is so it can be removed from any financial aid calculation. However, the refundable part of the AOTC (up to $1,000) is not reported on FAFSA and therefore can have an impact on financial aid. The reporting is the same on Profile, but how the data is used in any institutional formula is up to each school. Also, schools that request tax transcripts or copies of tax returns will have all the education tax credit and deduction information available to them for their consideration, including any refundable part of the AOTC.
@BelknapPoint If I remember the basic FAFSA formula which is to start with the net wages per W-2 and add back any pre tax items (401K) to arrive at a gross figure. Then from that they allow you to subtract taxes paid. A tax credit of $2,500 would reduce the taxes I paid so it would have the effect of increasing the result of the above calc. Jokingly, I explain to my wife that you simply take your gross income , less taxes paid, times 50% and that is what you pay colleges. Hahah. But if my taxes are less then I am basically paying 50% of the tax credit benefit to the school through increased EFC. No?
If you claim the full AOTC of $2,500, only the $1,500 non-refundable portion is a FAFSA consideration. The refundable $1,000 portion is not figured into the taxes paid amount, because it is applied on the tax form after the line that is reported as your taxes paid amount.
Hmmm. Ok thanks. Can you tell I never claimed that particular tax credit before! 
The AOTC (refundable and nonrefundable portions) has no effect on FAFSA EFC.
The FAFSA asks for federal income tax on line 56 of 2015 Form 1040.
The amount on line 56 was reduced by the up to $1500 non refundable portion of the AOTC (the amount on line 50).
FAFSA then asks for the amount on line 50, in order to add it back to the amount on line 56, so that you are not penalized for claiming the AOTC.
The up to $1,000 refundable portion of the AOTC is on line 68 of 2015 Form 1040 which is in the “payment section” of Form 1040 and has no effect on the FAFSA, just as federal income tax withholding, estimated tax payments, extension payments, additional child tax credit, earned income credit are all in the “payment section” of Form 1040 which also have no effect on FAFSA.
Ok. It is the add back that fixed what I was thinking. Thanks. I understand.
I was also unclear on the refundable part. When I hear refundable I think of the EIC. I pay so much in taxes, I never figured I would qualify for any refundable credit but I understand now. thank you for the clarification. It was very helpful and well explained.
https://www.irs.gov/pub/irs-prior/p970–2015.pdf
**Tax Benefits for Education **
This will be updated in early 2017.
I would be very surprised if the meet-full-need colleges who are trying to stretch their financial aid the farthest did NOT take the available tax credits into account when determining the expected family contribution.
https://studentaid.ed.gov/sa/sites/default/files/2017-18-efc-formula.pdf (see page 9)
As far as I know the FAFSA formula asks for AGI, then income from working, adds untaxed income from 94a through 94i, and subtracts the items from question 93a through 93f from that to arrive at total income.
Then it figures the social sec tax, state tax deduction, and considers federal tax paid. It gives an employment expense allowance (single parent family, two wage earner family), and an income protection amount based on people in household and number in college.
That gives you the available income.
Together with the available assets (after parent asset protection amount), it figures an EFC and divides it by number in college and adds student calculation from income and assets to that if applicable.
The AOTC is a credit for qualified education expenses that were paid during the calender year for tuition, fees, books and can’t have been paid with 529 money or tax-free scholarship for the same expenses.
The AOTC you can claim for a student in college in 2017 will be reported on the 2019/20 FAFSA.
Not 529 money? How about from 529 plan basis funds. The amount you put into the 529 but not the earning while the money was in the 529?
So are all 529 funds contaminated and cannot be used for this credit?
This is interesting and I should plan accordingly to pay the $4k out of current funds and the remainder out of the 529.
I think it is time I look deeper into this tax credit business.
Yes, look at Publication 970
you cannot double dip
A double dip only occurs when you get a double tax benefit. So if I paid for tuition with a 401K account where I deducted the amounts going in and then claimed a tax credit also. But here a 529 is post tax and no tax benefit is gained when the funds go in. I totally get the benefit of using the earning because those are benefited by being untaxed. Not being argumentative. Just kinda thinking aloud here.
Will look at that pub. Thanks for bringing this up. It would not have occurred to me. @mommdc
https://www.irs.gov/publications/p970/ch08.html#en_US_2015_publink1000178534
https://www.irs.gov/publications/p970/ch02.html#en_US_2015_publink1000204348
Is a QTP a 529 plan? I think it might be a different product.
https://www.irs.gov/publications/p970/ch08.html#d0e10474
“Introduction
Qualified tuition programs (QTPs) are also called “529 plans.””
From @mommdc 's first link:
@mommdc I think I need to pay you some money for all this wonderful tax planning your assisting me with.
@MassDaD68 just trying to pass on knowledge I have myself received here at CC