Education Credits - American Opportunity Tax Credit
As a U.S. person, you have certain obligations, such as the requirement to file annually your tax return and FBAR, above certain thresholds, but you are also might be entitled to certain privileges, even if you live outside the U.S. and never had actually to pay U.S. taxes. Two of the most significant benefits for U.S. citizens living abroad are the education credit and the child tax credit. The sections below will cover further explanations and the eligibility criteria for the education tax credit, also known as "American Opportunity Tax Credit").
Background on the American Opportunity Tax Credit
The American opportunity tax credit (AOTC) is a credit for qualified education expenses paid for an eligible student for the first four years of higher education. You can get a maximum annual credit of $2,500 per eligible student. If the credit brings the amount of tax you owe to zero, you can have 40 percent of any remaining amount of the credit (up to $1,000) refunded to you.
The amount of the credit is 100 percent of the first $2,000 of qualified education expenses you paid for each eligible student and 25 percent of the next $2,000 of qualified education expenses you paid for that student. But, if the credit pays your tax down to zero, you can have 40 percent of the remaining amount of the credit (up to $1,000) refunded to you.
Usually, qualified education expenses include mainly the tuition you paid, reduced by the amount of tax-free scholarships and fellowship
grants.
You can claim the American Opportunity Tax Credit, up to 3 years back (currently, tax year 2017).
Who is an eligible student for AOTC?
To be eligible for AOTC, the student must:
-
Be pursuing a degree or other recognized education credential.
-
Be enrolled at least half time for at least one academic period (semester) beginning in the tax year.
-
Not have finished the first four years of higher education at the beginning of the tax year.
-
Not have a felony drug conviction at the end of the tax year.
​
Eligible Educational Institutions and Form 1098-T
To be eligible to claim the AOTC, the law requires a taxpayer to have received Form 1098-T, Tuition Statement, from an eligible educational institution, whether domestic or foreign. Generally, students receive a Form 1098-T Tuition Statement, from their school by January 31. This statement is mandatory to apply for the credit. The following educational institutions are eligible today in Israel - Tel Aviv University, Haifa University, Bar Ilan University, Hebrew University, Technion, Ben Gurion University, The Interdisciplinary College in Herzliya (IDC).
Who Can't Claim the Credit?
You can't claim the American opportunity credit if any of the following apply:
-
Your filing status is married filing separately.
-
You are claimed as a dependent on another person's tax return, such as your parent's return.
-
Your gross income is $90,000 or more ($180,000 or more if married filing jointly).
-
You weren’t issued an SSN by the due date of your tax return (including extensions).
How to file
The AOTC is calculated and determined as part of the annual tax return to the IRS. It cannot be submitted separately.
Improper Claims
Make sure you are qualified before claiming the credit, and you keep copies of all the documents you used to find out if you qualify and determine the amount of your credit. If the IRS audits your return and finds your AOTC claim is incorrect and you don’t have the documents to show you qualified, you must pay back the amount of the AOTC you received in error with interest. The IRS may also charge you an accuracy or a fraud penalty. You also will not be allowed to claim these credits for 2-10 years.
Related Topics: