How does the american opportunity affect my fafsa application? I currently can file under my parents and receive the full $2500 or file on my on and receive $1000. But will I receive less money or have a higher EFC if I take more money?
You need to become an independent student so you don’t have to deal with your parents stuff anymore. Go work somewhere for a while and once you’re 24 by the end of the year you’d be submitting FAFSA for your universities Fall semester, you’ll be rolling in aid if you make little money the year previous. DO IT!!
How do you figure that you can choose who claims the AOTC?
If your parents are eligible to claim you as their dependent on taxes, even if they choose not to, then you can’t claim yourself. There are rules about this.
You can’t choose who gets the credit.
Ask your parents if they will give you the $2500 once they get their refund.
The AOTC (whether or not there is one) does NOT affect the FAFSA EFC whatsoever.
@Madison85, education credits get listed on FAFSA, in the parent section usually. We reported one this year in question 93a.
It asked for line 50 of our 1040, which was the nonrefundable part of our AOTC. This gets subtracted from parent income I believe.
It also reduces the tax paid. So it could affect the EFC a bit, probably not much though.
From Pub 970: “If there are qualified education expenses for your dependent during a tax year, either you or your dependent, but not both of you, can claim an American opportunity credit for your dependent’s expenses for that year.”
If the kid claims the credit, no one gets the dependency exemption. But you can choose who gets the credit.
The FAFSA asks for federal income tax on line 56 of 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. .
So, once again, the AOTC has no effect on FAFSA EFC.
To clarify post #3 and post #16: the student who doesn’t meet certain requirements can’t get the *refundable *portion of the AOTC. So yes, you can choose, but the student may only get the nonrefundable portion.
This is a complicated question. The answer can vary depending on your income.
I am being a tax prep volunteer this year and we have handouts saying that the only way to know which way is best overall, you have to do a trial run of the student’s and the parents’ tax returns both ways. And that is not considering possible effect on next year’s FAFSA. I think most of the time next year’s FAFSA won’t be affected, but there are legal ways to pay taxes on otherwise taxfree grants/scholarships in order to maximize AOTC and that could have an effect on dependency status for one thing and taxable income for another. Definitely check out irs Pub 970.
Do a mockup of your own taxes both ways. Then use those figures in the FAFSA 4caster to see what your award would look like next year.
I’m no tax expert, but in the 2016-17 EFC formula on page 9, parent worksheet, in number 6 it asks for “total additional financial information” which is the “total from FAFSA/SAR #93 a to 93f”. This gets subtracted from “taxable and untaxed” parent income.
line 50 of 1040 gets reported in question 93a
I have not used IRS data retrieval tool yet, so it’s possible that I did it incorrectly, but when it becomes available next week I am going to know which fields from FAFSA will be filled in automatically from the tax return with the DRT.