<p>...My parents are claiming $ 3000 in contribution to my Qualified tuition which gives them a $ 2250 American Opportunity Tax Credit. Then because of their income they can only claim $ 1100 against taxes on 1040 Line 49 and another $ 900 refundable credit on 1040 Line 66 (40 % of the AOP credit is refundable; the rest must offset taxes due). So far so good.</p>
<p>FAFSA on line 92A asks for Parent's Hope and Lifetime credits as shown on Form 1040 line 49. My problem is:
1) First, my parents tax credits are not from Hope or Lifetime credits but from American opportunity credits. Do we have to report AOP credits?
2) Second: FAFSA specifically refers to Form 1040 Line 49 : in this case the portion of AOP credits my parents receive on that line are $ 1100. Should I just report this? what about the $ 900 tax credit which is refundable on Line 66? </p>
<p>Thank you in advance for clarifying this confusing situation.</p>
<p>I can’t help with the FAFSA problem, but the tax problem is because it takes $4000 of qualified tuition to get the entire $2,500 AOC credit. It is 100% of the first $2000 and 25% of the next $2000.</p>
<p>I spent a lot of time figuring out this issue for my son’s FAFSA. The answer is that the new AO tax credit is an expansion of the previously existing Hope credit and you do use the amount from line 49. Don’t worry about the refundable amount - just use the amount on line 49 to answer this question. I verified this answer with both FAFSA and my son’s university fin aid dept. after posters here brought it to my attention - like you - I was very confused by this question.</p>
<p>I really do not understand why the FAFSA people haven’t modified the language for the question to include the American Opportunity Credit – it has got to be cheaper than answering a ton of phone calls or manually modifying a huge number of student EFCs.</p>
<p>Thank you rockvillemom for your help on this technical question. So, the refundable credit (1040 line 66) while real money is not reported anywhere on the FAFSA. Strange?</p>
<p>Not really. The purpose of the question is not to report income but to ot penalize you for having taken the credit. The tax credits reduce your tax which would increase your EFC. So the tax credits in the FAFSA question are deducted from the AGI (just as the tax would have been) so that you are not penalized for having taken a credit. </p>
<p>For instance if the AGI is $50,000 and your tax (without the credit) would have been $5000 then in the EFC formula the $5000 is deducted as an allowance from the AGI giving $45,000 available in the EFC formula. If you took an education tax credit of $1000 then your taxes reported on FAFSA would be only $4000 so the EFC formula would deduct only $4000 from the AGI leaving $46000 income available in the EFC formula. This would increase the EFC. The intent of the tax credit is not to increase your EFC so the question is asked about the credit and the answer ($1,000 in my example) is used to reduce the available income in the EFC formula, thus bringing it back to the $45,000 it would have been without the credit.</p>
<p>The tax you report on FAFSA is the total tax from line 55 (on 1040). The refundable part of the education credit is on line 66 & does not reduce your tax reported on FAFSA. As this part of the tax reduction did not reduce the tax reported on FAFSA in the first place there is no adjustment to be made, so you do not report is separately.</p>
<p>Using the same example as above. If the AGI is $50,000 and your tax (without the credit) would have been $5000 then in the EFC formula the $5000 is deducted as an allowance from the AGI giving $45,000 available in the EFC formula. If you took an education tax credit that was $1000 nonrefundable (line 49 on the tax return) and $800 refundable (line 66 on the tax return) then the taxes reported on FAFSA would still be $4000 (line 55) as the $800 is an “after the taxes” credit on the tax return and has not been reported on FAFSA. So you only report the $1000, basically to make your taxes what they would have been on line 55 of the 1040 if you had not had that $1000 credit.</p>
<p>YNot - correct - the refundable credit is not reported on FAFSA anywhere. Swimcatsmom does a wonderful job with trying to get us to understand the concept behind these questions. I get to the point where I say argghh - just tell me what to do, I don’t need to understand it. But I have to say, she is starting to penetrate my brain, I get the math more than I did 2 weeks ago.</p>
<p>yea, I’m one of those “I need to understand why it works that way” people :D. Well when it comes to numbers - not cars, plumbing, electricity etc etc</p>