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E file 2. E file   American Opportunity Credit Table of Contents Introduction Can You Claim the CreditWho Can Claim the Credit Who Cannot Claim the Credit What Expenses QualifyQualified Education Expenses No Double Benefit Allowed Expenses That Do Not Qualify Who Is an Eligible StudentException. E file Who Can Claim a Dependent's Expenses Figuring the CreditEffect of the Amount of Your Income on the Amount of Your Credit Refundable Part of Credit Claiming the Credit Introduction For 2013, there are two tax credits available to help you offset the costs of higher education by reducing the amount of your income tax. E file They are the American opportunity credit (this chapter) and the lifetime learning credit ( chapter 3 ). E file This chapter explains: Who can claim the American opportunity credit, What expenses qualify for the credit, Who is an eligible student, Who can claim a dependent's expenses, How to figure the credit, How to claim the credit, and When the credit must be repaid. E file What is the tax benefit of the American opportunity credit. E file   For the tax year, you may be able to claim an American opportunity credit of up to $2,500 for qualified education expenses paid for each eligible student. E file   A tax credit reduces the amount of income tax you may have to pay. E file Unlike a deduction, which reduces the amount of income subject to tax, a credit directly reduces the tax itself. E file Forty percent of the American opportunity credit may be refundable. E file This means that if the refundable portion of your credit is more than your tax, the excess will be refunded to you. E file   Your allowable American opportunity credit may be limited by the amount of your income. E file Also, the nonrefundable part of the credit may be limited by the amount of your tax. E file Overview of the American opportunity credit. E file   See Table 2-1, Overview of the American Opportunity Credit , for the basics of this credit. E file The details are discussed in this chapter. E file Can you claim more than one education credit this year. E file   For each student, you can elect for any year only one of the credits. E file For example, if you elect to take the American opportunity credit for a child on your 2013 tax return, you cannot use that same child's qualified education expenses to figure the lifetime learning credit for 2013. E file   If you pay qualified education expenses for more than one student in the same year, you can choose to take the American opportunity credit on a per-student, per-year basis. E file If you pay qualified education expenses for a student (or students) for whom you do not claim the American opportunity credit, you can use the adjusted qualified education expenses of that student (or those students) in figuring your lifetime learning credit. E file This means that, for example, you can claim the American opportunity credit for one student and the lifetime learning credit for another student in the same year. E file Differences between the American opportunity and lifetime learning credits. E file   There are several differences between these two credits. E file For example, you can claim the American opportunity credit based on the same student's expenses for no more than 4 tax years, which includes any tax years you claimed the Hope Scholarship Credit for that student. E file However, there is no limit on the number of years for which you can claim a lifetime learning credit based on the same student's expenses. E file The differences between these credits are shown in Appendix B, Highlights of Education Tax Benefits for Tax Year 2013 near the end of this publication. E file If you claim the American opportunity credit for any student, you can choose between using that student's adjusted qualified education expenses for the American opportunity credit or the lifetime learning credit. E file If you have the choice, the American opportunity credit will always be greater than the lifetime learning credit. E file Table 2-1. E file Overview of the American Opportunity Credit Maximum credit Up to $2,500 credit per eligible student Limit on modified adjusted gross income (MAGI) $180,000 if married filing jointly; $90,000 if single, head of household, or qualifying widow(er) Refundable or nonrefundable 40% of credit may be refundable; the rest is nonrefundable Number of years of postsecondary education Available ONLY if the student had not completed the first 4 years of postsecondary education before 2013 Number of tax years credit available Available ONLY for 4 tax years per eligible student (including any year(s) Hope Scholarship Credit was claimed) Type of program required Student must be pursuing a program leading to a degree or other recognized education credential Number of courses Student must be enrolled at least half time for at least one academic period that begins during the tax year Felony drug conviction As of the end of 2013, the student had not been convicted of a felony for possessing or distributing a controlled substance Qualified expenses Tuition, required enrollment fees, and course materials that the student needs for a course of study whether or not the materials are bought at the educational institution as a condition of enrollment or attendance Payments for academic periods Payments made in 2013 for academic periods beginning in 2013 or beginning in the first 3 months of 2014 Can You Claim the Credit The following rules will help you determine if you are eligible to claim the American opportunity credit on your tax return. E file Who Can Claim the Credit Generally, you can claim the American opportunity credit if all three of the following requirements are met. E file You pay qualified education expenses of higher education. E file You pay the education expenses for an eligible student. E file The eligible student is either yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. E file Student qualifications. E file   Generally, you can take the American opportunity credit for a student only if all of the following four requirements are met. E file As of the beginning of 2013, the student had not completed the first four years of postsecondary education (generally, the freshman through senior years of college), as determined by the eligible educational institution. E file For this purpose, do not include academic credit awarded solely because of the student's performance on proficiency examinations. E file Neither the American opportunity credit nor the Hope Scholarship Credit has been claimed (by you or anyone else) for this student for any four tax years before 2013. E file If the American opportunity credit (and Hope Scholarship Credit) has been claimed for this student for any three or fewer tax years before 2013, this requirement is met. E file For at least one academic period beginning (or treated as beginning) in 2013, the student both: Was enrolled in a program that leads to a degree, certificate, or other recognized educational credential; and Carried at least one-half the normal full-time workload for his or her course of study. E file The standard for what is half of the normal full-time work load is determined by each eligible educational institution. E file However, the standard may not be lower than any of those established by the U. E file S. E file Department of Education under the Higher Education Act of 1965. E file For purposes of whether the student satisfies this third requirement for 2013, treat an academic period beginning in the first three months of 2014 as if it began in 2013 if qualified education expenses for the student were paid in 2013 for that academic period. E file See Prepaid expenses, later. E file As of the end of 2013, the student had not been convicted of a federal or state felony for possessing or distributing a controlled substance. E file Example 1. E file Sharon was eligible for the Hope Scholarship Credit for 2007 and 2008 and for the American opportunity credit for 2010 and 2012. E file Her parents claimed the Hope Scholarship Credit for Sharon on their tax returns for 2007 and 2008 and claimed the American opportunity credit for Sharon on their 2010 tax return. E file Sharon claimed the American opportunity credit on her 2012 tax return. E file The American opportunity credit and Hope Scholarship Credit have been claimed for Sharon for four tax years before 2013. E file Therefore, the American opportunity credit cannot be claimed by Sharon for 2013. E file If Sharon were to file Form 8863 for 2013, she would check “Yes” for Part III, line 23, and would be eligible to claim only the lifetime learning credit. E file Example 2. E file Wilbert was eligible for the American opportunity credit for 2009, 2010, 2011, and 2013. E file His parents claimed the American opportunity credit for Wilbert on their tax returns for 2009, 2010, and 2011. E file No one claimed an American opportunity credit or Hope Scholarship Credit for Wilbert for any other tax year. E file The American opportunity credit and Hope Scholarship Credit have been claimed for Wilbert for only three tax years before 2013. E file Therefore, Wilbert meets the second requirement to be eligible for the American opportunity credit. E file If Wilbert were to file Form 8863 for 2013, he would check “No” for Part III, line 23. E file If Wilbert meets all of the other requirements, he is eligible for the American opportunity credit. E file Example 3. E file Glenda enrolls on a full-time basis in a degree program for the 2014 Spring semester, which begins in January 2014. E file Glenda pays her tuition for the 2014 Spring semester in December 2013. E file Because the tuition Glenda paid in 2013 relates to an academic period that begins in the first 3 months of 2014, her eligibility to claim an American opportunity credit in 2013 is determined as if the 2014 Spring semester began in 2013. E file If the requirements above are not met for any student, you cannot take the American opportunity credit for that student. E file You may be able to take the lifetime learning credit for part or all of that student's qualified education expenses instead. E file Note. E file Qualified education expenses paid by a dependent for whom you claim an exemption, or by a third party for that dependent, are considered paid by you. E file “Qualified education expenses” are defined later under Qualified Education Expenses . E file “Eligible students” are defined later under Who Is an Eligible Student . E file A dependent for whom you claim an exemption is defined later under Who Can Claim a Dependent's Expenses . E file You may find Figure 2-1, Can You Claim the American Opportunity Credit for 2013 , later, helpful in determining if you can claim an American opportunity credit on your tax return. E file This image is too large to be displayed in the current screen. E file Please click the link to view the image. E file Figure 2-1 Can you claim the American opportunity credit for 2012? Who Cannot Claim the Credit You cannot claim the American opportunity credit for 2013 if any of the following apply. E file Your filing status is married filing separately. E file You are listed as a dependent on another person's tax return (such as your parents'). E file See Who Can Claim a Dependent's Expenses , later. E file Your modified adjusted gross income (MAGI) is $90,000 or more ($180,000 or more in the case of a joint return). E file MAGI is explained later under Effect of the Amount of Your Income on the Amount of Your Credit . E file You (or your spouse) were a nonresident alien for any part of 2013 and the nonresident alien did not elect to be treated as a resident alien for tax purposes. E file More information on nonresident aliens can be found in Publication 519, U. E file S. E file Tax Guide for Aliens. E file What Expenses Qualify The American opportunity credit is based on adjusted qualified education expenses you pay for yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. E file Generally, the credit is allowed for adjusted qualified education expenses paid in 2013 for an academic period beginning in 2013 or beginning in the first three months of 2014. E file For example, if you paid $1,500 in December 2013 for qualified tuition for the spring 2014 semester beginning January 2014, you can use that $1,500 in figuring your 2013 credit. E file Academic period. E file   An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. E file In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. E file Paid with borrowed funds. E file   You can claim an American opportunity credit for qualified education expenses paid with the proceeds of a loan. E file Use the expenses to figure the American opportunity credit for the year in which the expenses are paid, not the year in which the loan is repaid. E file Treat loan payments sent directly to the educational institution as paid on the date the institution credits the student's account. E file Student withdraws from class(es). E file   You can claim an American opportunity credit for qualified education expenses not refunded when a student withdraws. E file Qualified Education Expenses For purposes of the American opportunity credit, qualified education expenses are tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. E file Eligible educational institution. E file   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. E file S. E file Department of Education. E file It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. E file The educational institution should be able to tell you if it is an eligible educational institution. E file   Certain educational institutions located outside the United States also participate in the U. E file S. E file Department of Education's Federal Student Aid (FSA) programs. E file Related expenses. E file   Student-activity fees are included in qualified education expenses only if the fees must be paid to the institution as a condition of enrollment or attendance. E file   However, expenses for books, supplies, and equipment needed for a course of study are included in qualified education expenses whether or not the materials are purchased from the educational institution. E file Prepaid expenses. E file   Qualified education expenses paid in 2013 for an academic period that begins in the first three months of 2014 can be used in figuring an education credit for 2013 only. E file See Academic period, earlier. E file For example, if you pay $2,000 in December 2013, for qualified tuition for the 2014 winter quarter that begins in January 2014, you can use that $2,000 in figuring an education credit for 2013 only (if you meet all the other requirements). E file    You cannot use any amount you paid in 2012 or 2014 to figure the qualified education expenses you use to figure your 2013 education credit(s). E file   In the following examples, assume that each student is an eligible student at an eligible educational institution. E file Example 1. E file Jefferson is a sophomore in University V's degree program in dentistry. E file This year, in addition to tuition, he is required to pay a fee to the university for the rental of the dental equipment he will use in this program. E file Because the equipment rental is needed for his course of study, Jefferson's equipment rental fee is a qualified expense. E file Example 2. E file Grace and William, both first-year students at College W, are required to have certain books and other reading materials to use in their mandatory first-year classes. E file The college has no policy about how students should obtain these materials, but any student who purchases them from College W's bookstore will receive a bill directly from the college. E file William bought his books from a friend; Grace bought hers at College W's bookstore. E file Both are qualified education expenses for the American opportunity credit. E file Example 3. E file When Kelly enrolled at College X for her freshman year, she had to pay a separate student activity fee in addition to her tuition. E file This activity fee is required of all students, and is used solely to fund on-campus organizations and activities run by students, such as the student newspaper and the student government. E file No portion of the fee covers personal expenses. E file Although labeled as a student activity fee, the fee is required for Kelly's enrollment and attendance at College X and is a qualified expense. E file No Double Benefit Allowed You cannot do any of the following. E file Deduct higher education expenses on your income tax return (as, for example, a business expense) and also claim an American opportunity credit based on those same expenses. E file Claim an American opportunity credit in the same year that you are claiming a tuition and fees deduction for the same student. E file Claim an American opportunity credit for any student and use any of that student's expenses in figuring your lifetime learning credit. E file Figure the tax-free portion of a distribution from a Coverdell education savings account (ESA) or qualified tuition program (QTP) using the same expenses you used to figure the American opportunity credit. E file See Coordination With American Opportunity and Lifetime Learning Credits in chapter 7, Coverdell Education Savings Account, and Coordination With American Opportunity and Lifetime Learning Credits in chapter 8, Qualified Tuition Program. E file Claim a credit based on qualified education expenses paid with tax-free educational assistance, such as a scholarship, grant, or assistance provided by an employer. E file See Adjustments to Qualified Education Expenses, next. E file Adjustments to Qualified Education Expenses For each student, reduce the qualified education expenses paid by or on behalf of that student under the following rules. E file The result is the amount of adjusted qualified education expenses for each student. E file Tax-free educational assistance. E file   For tax-free educational assistance received in 2013, reduce the qualified educational expenses for each academic period by the amount of tax-free educational assistance allocable to that academic period. E file See Academic period, earlier. E file   Some tax-free educational assistance received after 2013 may be treated as a refund of qualified education expenses paid in 2013. E file This tax-free educational assistance is any tax-free educational assistance received by you or anyone else after 2013 for qualified education expenses paid on behalf of a student in 2013 (or attributable to enrollment at an eligible educational institution during 2013). E file   If this tax-free educational assistance is received after 2013 but before you file your 2013 income tax return, see Refunds received after 2013 but before your income tax return is filed, later. E file If this tax-free educational assistance is received after 2013 and after you file your 2013 income tax return, see Refunds received after 2013 and after your income tax return is filed, later. E file   Tax-free educational assistance includes: The tax-free parts of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions). E file Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. E file Generally, any scholarship or fellowship is treated as tax free. E file However, a scholarship or fellowship is not treated as tax free to the extent the student includes it in gross income (if the student is required to file a tax return for the year the scholarship or fellowship is received) and either of the following is true. E file The scholarship or fellowship (or any part of it) must be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. E file The scholarship or fellowship (or any part of it) may be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. E file You may be able to increase the combined value of an education credit and certain educational assistance if the student includes some or all of the educational assistance in income in the year it is received. E file For examples, see Coordination with Pell grants and other scholarships, later. E file Refunds. E file   A refund of qualified education expenses may reduce adjusted qualified education expenses for the tax year or require repayment (recapture) of a credit claimed in an earlier year. E file Some tax-free educational assistance received after 2013 may be treated as a refund. E file See Tax-free educational assistance, earlier. E file Refunds received in 2013. E file   For each student, figure the adjusted qualified education expenses for 2013 by adding all the qualified education expenses for 2013 and subtracting any refunds of those expenses received from the eligible educational institution during 2013. E file Refunds received after 2013 but before your income tax return is filed. E file   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is paid before you file an income tax return for 2013, the amount of qualified education expenses for 2013 is reduced by the amount of the refund. E file Refunds received after 2013 and after your income tax return is filed. E file   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is paid after you file an income tax return for 2013, you may need to repay some or all of the credit. E file See Credit recapture, next. E file Credit recapture. E file    If any tax-free educational assistance for the qualified education expenses paid in 2013, or any refund of your qualified education expenses paid in 2013, is received after you file your 2013 income tax return, you must recapture (repay) any excess credit. E file You do this by refiguring the amount of your adjusted qualified education expenses for 2013 by reducing the expenses by the amount of the refund or tax-free educational assistance. E file You then refigure your education credit(s) for 2013 and figure the amount by which your 2013 tax liability would have increased if you claimed the refigured credit(s). E file Include that amount as an additional tax for the year the refund or tax-free assistance was received. E file Example. E file   You paid $7,000 tuition and fees in August 2013, and your child began college in September 2013. E file You filed your 2013 tax return on February 17, 2014, and claimed an American opportunity credit of $2,500. E file After you filed your return, you received a refund of $4,000. E file You must refigure your 2013 American opportunity credit using $3,000 of qualified education expenses instead of $7,000. E file The refigured credit is $2,250. E file The increase to your tax liability is also $250. E file Include the difference of $250 as additional tax on your 2014 tax return. E file See the instructions for your 2014 income tax return to determine where to include this tax. E file If you pay qualified education expenses in 2014 for an academic period that begins in the first 3 months of 2014 and you receive tax-free educational assistance, or a refund, as described above, you may choose to reduce your qualified education expenses for 2014 instead of reducing your expenses for 2013. E file Amounts that do not reduce qualified education expenses. E file   Do not reduce qualified education expenses by amounts paid with funds the student receives as: Payment for services, such as wages, A loan, A gift, An inheritance, or A withdrawal from the student's personal savings. E file   Do not reduce the qualified education expenses by any scholarship or fellowship reported as income on the student's tax return in the following situations. E file The use of the money is restricted, by the terms of the scholarship or fellowship, to costs of attendance (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. E file The use of the money is not restricted. E file Example 1. E file Joan paid $3,000 for tuition and $5,000 for room and board at University X. E file The university did not require her to pay any fees in addition to her tuition in order to enroll in or attend classes. E file To help pay these costs, she was awarded a $2,000 scholarship and a $4,000 student loan. E file The terms of the scholarship state that it can be used to pay any of Joan's college expenses. E file University X applies the $2,000 scholarship against Joan's $8,000 total bill, and Joan pays the $6,000 balance of her bill from University X with a combination of her student loan and her savings. E file Joan does not report any portion of the scholarship as income on her tax return. E file In figuring the amount of either education credit (American opportunity or lifetime learning), Joan must reduce her qualified education expenses by the amount of the scholarship ($2,000) because she excluded the entire scholarship from her income. E file The student loan is not tax-free educational assistance, so she does not need to reduce her qualified expenses by any part of the loan proceeds. E file Joan is treated as having paid $1,000 in qualified education expenses ($3,000 tuition – $2,000 scholarship). E file Example 2. E file The facts are the same as in Example 1, except that Joan reports her entire scholarship as income on her tax return. E file Because Joan reported the entire $2,000 scholarship in her income, she does not need to reduce her qualified education expenses. E file Joan is treated as having paid $3,000 in qualified education expenses. E file Coordination with Pell grants and other scholarships. E file   In some cases, you may be able to reduce your tax liability by including scholarships in income. E file If you are claiming an education credit for a claimed dependent who received a scholarship, you may be able to reduce your tax liability if the student includes the scholarship in income. E file The scholarship must be one that may (by its terms) be applied to expenses (such as room and board) other than qualified education expenses. E file Example 1—No scholarship. E file Bill Pass, age 28 and unmarried, enrolled full-time in 2013 as a first-year student at a local college to earn a degree in law enforcement. E file This was his first year of postsecondary education. E file During 2013, he paid $5,600 for his qualified education expenses and $4,400 for his room and board for the fall 2013 semester. E file He and the college meet all the requirements for the American opportunity credit. E file Bill's AGI and his MAGI, for purposes of figuring his credit, are $30,000. E file Bill takes the standard deduction of $5,950 and personal exemption of $3,800, reducing his AGI to taxable income of $20,250. E file His income tax liability, before credits, is $2,599 and Bill claims no credits other than the American opportunity credit. E file He figures his American opportunity credit based on qualified education expenses of $4,000, which results in a credit of $2,500 and tax after credits of $99. E file Example 2—Scholarship excluded from income. E file The facts are the same as in Example 1—No scholarship, except that Bill was awarded a $5,600 scholarship. E file Under the terms of his scholarship, it may be used to pay any educational expenses, including room and board. E file If Bill excludes the scholarship from income, he will be deemed (for purposes of computing his education credit) to have used the scholarship to pay for tuition, required fees, and course materials. E file His adjusted qualified education expenses will be zero and he will not have an education credit. E file Therefore, Bill's tax after credits would be $2,599. E file Example 3—Scholarship partially included in income. E file The facts are the same as in Example 2—Scholarship excluded from income. E file If, unlike Example 2, Bill includes $4,000 of the scholarship in income, he will be deemed to have used that amount to pay for room and board. E file The remaining $1,600 of the $5,600 scholarship will reduce his qualified education expenses and his adjusted qualified education expenses will be $4,000. E file Bill's AGI will increase to $34,000, his taxable income will increase to $24,250, and his tax before credits will increase to $3,199. E file Based on his adjusted qualified education expenses of $4,000, Bill would be able to claim an American opportunity tax credit of $2,500 and his tax after credits would be $699. E file Expenses That Do Not Qualify Qualified education expenses do not include amounts paid for: Insurance, Medical expenses (including student health fees), Room and board, Transportation, or Similar personal, living, or family expenses. E file This is true even if the amount must be paid to the institution as a condition of enrollment or attendance. E file Sports, games, hobbies, and noncredit courses. E file   Qualified education expenses generally do not include expenses that relate to any course of instruction or other education that involves sports, games or hobbies, or any noncredit course. E file However, if the course of instruction or other education is part of the student's degree program, these expenses can qualify. E file Comprehensive or bundled fees. E file   Some eligible educational institutions combine all of their fees for an academic period into one amount. E file If you do not receive or do not have access to an allocation showing how much you paid for qualified education expenses and how much you paid for personal expenses, such as those listed earlier, contact the institution. E file The institution is required to make this allocation and provide you with the amount you paid (or were billed) for qualified education expenses on Form 1098-T, Tuition Statement. E file See Figuring the Credit , later, for more information about Form 1098-T. E file Who Is an Eligible Student To claim the American opportunity credit, the student for whom you pay qualified education expenses must be an eligible student. E file This is a student who meets all of the following requirements. E file The student did not have expenses that were used to figure an American opportunity credit in any 4 earlier tax years. E file This includes any tax year(s) in which you claimed the Hope Scholarship Credit for the same student. E file The student had not completed the first 4 years of postsecondary education (generally, the freshman, sophomore, junior, and senior years of college) before 2013. E file For at least one academic period beginning in 2013, the student was enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential. E file The student has not been convicted of any federal or state felony for possessing or distributing a controlled substance as of the end of 2013. E file These requirements are also shown in Figure 2-2, Who is an Eligible Student for the American Opportunity Credit , later. E file Completion of first 4 years. E file   A student has completed the first 4 years of postsecondary education if the institution at which the student is enrolled awards the student 4 years of academic credit at that institution for coursework completed by the student before 2013. E file This student generally would not be an eligible student for purposes of the American opportunity credit. E file Exception. E file   Any academic credit awarded solely on the basis of the student's performance on proficiency examinations is disregarded in determining whether the student has completed 4 years of postsecondary education. E file Enrolled at least half-time. E file   A student was enrolled at least half-time if the student was taking at least half the normal full-time work load for his or her course of study. E file   The standard for what is half of the normal full-time work load is determined by each eligible educational institution. E file However, the standard may not be lower than any of those established by the U. E file S. E file Department of Education under the Higher Education Act of 1965. E file Please click here for the text description of the image. E file Figure 2-2 Example 1. E file Mack graduated from high school in June 2012. E file In September, he enrolled in an undergraduate degree program at College U, and attended full-time for both the 2012 fall and 2013 spring semesters. E file For the 2013 fall semester, Mack was enrolled less than half-time. E file Because Mack was enrolled in an undergraduate degree program on at least a half-time basis for at least one academic period that began during 2012 and at least one academic period that began during 2013, he is an eligible student for tax years 2012 and 2013 (including the 2013 fall semester when he enrolled at College U on less than a half-time basis). E file Example 2. E file After taking classes at College V on a part-time basis for a few years, Shelly became a full-time student for the 2013 spring semester. E file College V classified Shelly as a second-semester senior (fourth year) for the 2013 spring semester and as a first-semester graduate student (fifth year) for the 2013 fall semester. E file Because College V did not classify Shelly as having completed the first 4 years of postsecondary education as of the beginning of 2013, Shelly is an eligible student for tax year 2013. E file Therefore, the qualified education expenses paid for the 2013 spring semester and the 2013 fall semester are taken into account in calculating the American opportunity credit for 2013. E file Example 3. E file During the 2012 fall semester, Larry was a high school student who took classes on a half-time basis at College X. E file Larry was not enrolled as part of a degree program at College X because College X only admits students to a degree program if they have a high school diploma or equivalent. E file Because Larry was not enrolled in a degree program at College X during 2012, Larry was not an eligible student for tax year 2012. E file Example 4. E file The facts are the same as in Example 3. E file During the 2013 spring semester, Larry again attended College X but not as part of a degree program. E file Larry graduated from high school in June 2013. E file For the 2013 fall semester, Larry enrolled as a full-time student in College X as part of a degree program, and College X awarded Larry credit for his prior coursework at College X. E file Because Larry was enrolled in a degree program at College X for the 2013 fall term on at least a half-time basis, Larry is an eligible student for all of tax year 2013. E file Therefore, the qualified education expenses paid for classes taken at College X during both the 2013 spring semester (during which Larry was not enrolled in a degree program) and the 2013 fall semester are taken into account in computing any American opportunity credit. E file Example 5. E file Dee graduated from high school in June 2012. E file In January 2013, Dee enrolled in a 1-year postsecondary certificate program on a full-time basis to obtain a certificate as a travel agent. E file Dee completed the program in December 2013, and was awarded a certificate. E file In January 2014, she enrolled in a 1-year postsecondary certificate program on a full-time basis to obtain a certificate as a computer programmer. E file Dee is an eligible student for both tax years 2013 and 2014 because she meets the degree requirement, the work load requirement, and the year of study requirement for those years. E file Who Can Claim a Dependent's Expenses 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. E file For you to claim an American opportunity credit for your dependent's expenses, you must also claim an exemption for your dependent. E file You do this by listing your dependent's name and other required information on Form 1040 (or Form 1040A), line 6c. E file IF you. E file . E file . E file THEN only. E file . E file . E file claim an exemption on  your tax return for a  dependent who is an  eligible student you can claim the American opportunity credit based on that dependent's expenses. E file The dependent cannot claim the credit. E file do not claim an exemption on your tax return for a dependent who is an eligible student (even if entitled to the exemption) the dependent can claim the American opportunity credit. E file You cannot claim the credit based on this dependent's expenses. E file Expenses paid by dependent. E file   If you claim an exemption on your tax return for an eligible student who is your dependent, treat any expenses paid (or deemed paid) by your dependent as if you had paid them. E file Include these expenses when figuring the amount of your American opportunity credit. E file    Qualified education expenses paid directly to an eligible educational institution for your dependent under a court-approved divorce decree are treated as paid by your dependent. E file Expenses paid by you. E file   If you claim an exemption for a dependent who is an eligible student, only you can include any expenses you paid when figuring the amount of the American opportunity credit. E file If neither you nor anyone else claims an exemption for the dependent, only the dependent can include any expenses you paid when figuring the American opportunity credit. E file Expenses paid by others. E file   Someone other than you, your spouse, or your dependent (such as a relative or former spouse) may make a payment directly to an eligible educational institution to pay for an eligible student's qualified education expenses. E file In this case, the student is treated as receiving the payment from the other person and, in turn, paying the institution. E file If you claim an exemption on your tax return for the student, you are considered to have paid the expenses. E file Example. E file In 2013, Ms. E file Allen makes a payment directly to an eligible educational institution for her grandson Todd's qualified education expenses. E file For purposes of claiming an American opportunity credit, Todd is treated as receiving the money from his grandmother and, in turn, paying his qualified education expenses himself. E file Unless an exemption for Todd is claimed on someone else's 2013 tax return, only Todd can use the payment to claim an American opportunity credit. E file If anyone, such as Todd's parents, claims an exemption for Todd on his or her 2013 tax return, whoever claims the exemption may be able to use the expenses to claim an American opportunity credit. E file If anyone else claims an exemption for Todd, Todd cannot claim an American opportunity credit. E file Tuition reduction. E file    When an eligible educational institution provides a reduction in tuition to an employee of the institution (or spouse or dependent child of an employee), the amount of the reduction may or may not be taxable. E file If it is taxable, the employee is treated as receiving a payment of that amount and, in turn, paying it to the educational institution on behalf of the student. E file For more information on tuition reductions, see Qualified Tuition Reduction in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. E file Figuring the Credit The amount of the American opportunity credit (per eligible student) is the sum of: 100% of the first $2,000 of qualified education expenses you paid for the eligible student, and 25% of the next $2,000 of qualified education expenses you paid for that student. E file The maximum amount of American opportunity credit you can claim in 2013 is $2,500 multiplied by the number of eligible students. E file You can claim the full $2,500 for each eligible student for whom you paid at least $4,000 of adjusted qualified education expenses. E file However, the credit may be reduced based on your MAGI. E file See Effect of the Amount of Your Income on the Amount of Your Credit , later. E file Example. E file Jack and Kay Ford are married and file a joint tax return. E file For 2013, they claim an exemption for their dependent daughter on their tax return. E file Their MAGI is $70,000. E file Their daughter is in her junior (third) year of studies at the local university. E file Jack and Kay paid qualified education expenses of $4,300 in 2013. E file Jack and Kay, their daughter, and the local university meet all of the requirements for the American opportunity credit. E file Jack and Kay can claim a $2,500 American opportunity credit in 2013. E file This is 100% of the first $2,000 of qualified education expenses, plus 25% of the next $2,000. E file Form 1098-T. E file   To help you figure your American opportunity credit, the student should receive Form 1098-T, Tuition Statement. E file Generally, an eligible educational institution (such as a college or university) must send Form 1098-T (or acceptable substitute) to each enrolled student by January 31, 2014. E file An institution may choose to report either payments received (box 1), or amounts billed (box 2), for qualified education expenses. E file However, the amounts in boxes 1 and 2 of Form 1098-T might be different than what you paid. E file When figuring the credit, use only the amounts you paid or are deemed to have paid in 2013 for qualified education expenses. E file   In addition, Form 1098-T should give other information for that institution, such as adjustments made for prior years, the amount of scholarships or grants, reimbursements or refunds, and whether the student was enrolled at least half-time or was a graduate student. E file    The eligible educational institution may ask for a completed Form W-9S, Request for Student's or Borrower's Taxpayer Identification Number and Certification, or similar statement to obtain the student's name, address, and taxpayer identification number. E file Effect of the Amount of Your Income on the Amount of Your Credit The amount of your American opportunity credit is phased out (gradually reduced) if your MAGI is between $80,000 and $90,000 ($160,000 and $180,000 if you file a joint return). E file You cannot claim an American opportunity credit if your MAGI is $90,000 or more ($180,000 or more if you file a joint return). E file Modified adjusted gross income (MAGI). E file   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return. E file MAGI when using Form 1040A. E file   If you file Form 1040A, your MAGI is the AGI on line 22 of that form. E file MAGI when using Form 1040. E file   If you file Form 1040, your MAGI is the AGI on line 38 of that form, modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. E file You can use Worksheet 2-1, next, to figure your MAGI. E file    Worksheet 2-1. E file MAGI for the American Opportunity Credit 1. E file Enter your adjusted gross income  (Form 1040, line 38)   1. E file   2. E file Enter your foreign earned income exclusion and/or housing exclusion (Form 2555, line 45, or Form 2555-EZ, line 18)   2. E file       3. E file Enter your foreign housing deduction (Form 2555, line 50)   3. E file       4. E file Enter the amount of income from Puerto Rico you are excluding   4. E file       5. E file Enter the amount of income from American Samoa you are excluding (Form 4563, line 15)   5. E file       6. E file Add the amounts on lines 2, 3, 4, and 5   6. E file   7. E file Add the amounts on lines 1 and 6. E file  This is your modified adjusted  gross income. E file Enter here and  on Form 8863, line 3   7. E file   Phaseout. E file   If your MAGI is within the range of incomes where the credit must be reduced, you will figure your reduced credit using lines 2-7, of Form 8863, Part I. E file The same method is shown in the following example. E file Example. E file You are filing a joint return and your MAGI is $165,000. E file In 2013, you paid $5,000 of qualified education expenses. E file You figure a tentative American opportunity credit of $2,500 (100% of the first $2,000 of qualified education expenses, plus 25% of the next $2,000 of qualified education expenses). E file Because your MAGI is within the range of incomes where the credit must be reduced, you must multiply your tentative credit ($2,500) by a fraction. E file The numerator of the fraction is $180,000 (the upper limit for those filing a joint return) minus your MAGI. E file The denominator is $20,000, the range of incomes for the phaseout ($160,000 to $180,000). E file The result is the amount of your phased out (reduced) American opportunity credit ($1,875). E file      $2,500 × $180,000 − $165,000  $20,000 = $1,875   Refundable Part of Credit Forty percent of the American opportunity credit is refundable for most taxpayers. E file However, if you were under age 24 at the end of 2013 and the conditions listed below apply to you, you cannot claim any part of the American opportunity credit as a refundable credit on your tax return. E file Instead, your allowed credit (figured on Form 8863, Part II) will be used to reduce your tax as a nonrefundable credit only. E file You do not qualify for a refund if items 1 (a, b, or c), 2, and 3 below apply to you. E file You were: Under age 18 at the end of 2013, or Age 18 at the end of 2013 and your earned income (defined below) was less than one-half of your support (defined below), or Over age 18 and under age 24 at the end of 2013 and a full-time student (defined below) and your earned income (defined below) was less than one-half of your support (defined below). E file At least one of your parents was alive at the end of 2013. E file You are filing a return as single, head of household, qualifying widow(er), or married filing separately for 2013. E file Earned income. E file   Earned income includes wages, salaries, professional fees, and other payments received for personal services actually performed. E file Earned income includes the part of any scholarship or fellowship that represents payment for teaching, research, or other services performed by the student that are required as a condition for receiving the scholarship or fellowship. E file Earned income does not include that part of the compensation for personal services rendered to a corporation which represents a distribution of earnings or profits rather than a reasonable allowance as compensation for the personal services actually rendered. E file   If you are a sole proprietor or a partner in a trade or business in which both personal services and capital are material income-producing factors, earned income also includes a reasonable allowance for compensation for personal services, but not more than 30% of your share of the net profits from that trade or business (after subtracting the deduction for one-half of self-employment tax). E file However, if capital is not an income-producing factor and your personal services produced the business income, the 30% limit does not apply. E file Support. E file   Your support includes food, shelter, clothing, medical and dental care, education, and the like. E file Generally, the amount of the item of support will be the amount of expenses incurred by the one furnishing such item. E file If the item of support is in the form of property or lodging, measure the amount of such item of support by its fair market value. E file However, a scholarship received by you is not considered support if you are a full-time student. E file See Publication 501 for details. E file Full-time student. E file   You are a full-time student for 2013 if during any part of any 5 calendar months during the year you were enrolled as a full-time student at an eligible educational institution (defined earlier), or took a full-time, on-farm training course given by such an institution or by a state, county, or local government agency. E file Claiming the Credit You claim the American opportunity credit by completing Form 8863 and submitting it with your Form 1040 or 1040A. E file Enter the nonrefundable part of the credit on Form 1040, line 49, or on Form 1040A, line 31. E file Enter the refundable part of the credit on Form 1040, line 66, or on Form 1040A, line 40. E file A filled-in Form 8863 is shown at the end of this publication. E file Note. E file In Appendix A. E file at the end of this publication, there is an example illustrating the use of Form 8863 when both the American opportunity credit and the lifetime learning credit are claimed on the same tax return. E file Prev  Up  Next   Home   More Online Publications

Topic 303 - Checklist of Common Errors When Preparing Your Tax Return

Before filing your return, review it to make sure it is correct and complete. The following checklist may help you to avoid common errors:

  • Did you consider filing your tax return electronically? By electronically filing your tax return, many common errors may be avoided or corrected by the computer software. Depending on your income, you may even qualify to e-file for free by using Free File tax software. For more information, visit the IRS website at www.irs.gov and click on the e-file logo on our home page.
  • Did you clearly print your name, social security number, and address, including ZIP code directly on your return? Note that if you are married but filing a separate return, do not include your spouse's name in the name, address and social security number fields on the return.
  • Did you enter the names and social security numbers for yourself, your spouse (if filing jointly), your dependents, and qualifying children for the earned income credit or child tax credit, exactly as those names and numbers appear on each person's social security card? If there have been any name changes be sure to contact the Social Security Administration at www.ssa.gov or call at 800-772-1213.
  • Did you check only one filing status?
  • Did you check the appropriate exemption boxes and enter the names and social security numbers exactly as those names and numbers appear on each person's social security card, for all dependents you claimed? Is the total number of exemptions entered?
  • Did you enter income, deductions, and credits on the correct lines and are the totals correct?
  • If you show a negative amount on your return, did you put brackets around it?
  • If you are taking the standard deduction and checked any box indicating either you or your spouse were age 65 or older or blind, did you find the correct standard deduction using the chart in the Form 1040 Instructions (PDF) or the Form 1040A Instructions (PDF)?
  • Did you figure the tax correctly? If you used the tax tables, did you use the correct column for your filing status?
  • Did you sign and date the return? If it is a joint return, did your spouse also sign and date the return?
  • Do you have a Form W-2 (PDF) from each of your employers and did you attach Copy B of each Form W-2 to your return? If you have more than one job, combine the wages and withholdings from all Form W-2s you receive and report those amounts on one return.
  • Did you attach each Form 1099-R (PDF) that shows federal tax was withheld?
  • Did you attach all other necessary schedules and forms in sequence number order as shown in the upper right-hand corner?
  • Did you use the correct mailing address from your tax form instructions?
  • Did you use a postage stamp on the envelope?
  • If you owe tax, did you enclose a check or money order made payable to the "United States Treasury" with the return and include your name, address, social security number, daytime telephone number, tax form, and tax year on the payment? For additional information, refer to Topic 158.
  • If you are due a refund and requested direct deposit, did you check your financial institution's routing and account numbers?
  • Did you make a copy of the signed return and all schedules for your records?

A few of the most common errors are:

  1. Incorrect or missing social security numbers.
  2. Incorrect tax entered based on taxable income and filing status.
  3. Computation errors in figuring the taxable income, withholding and estimated tax payments, earned income credit, standard deduction for age 65 or over or blind, the taxable amount of social security benefits, and child and dependent care credit. Also, missing or incorrect identification numbers for child care providers.
  4. Withholding and estimated tax payments entered on the wrong line.
  5. Math errors, both addition and subtraction.

It is important that you review your entire return because any errors may delay the processing of your return.

Page Last Reviewed or Updated: January 22, 2014

The E File

E file Publication 721 - Introductory Material Table of Contents Reminders IntroductionOrdering forms and publications. E file Tax questions. E file Useful Items - You may want to see: Reminders Future developments. E file  For the latest information about developments related to Publication 721, such as legislation enacted after it was published, go to www. E file IRS. E file gov/pub721. E file Phased retirement. E file   The new phased retirement program was signed into law by the Moving Ahead for Progress in the 21st Century Act and will be available for retirement eligible individuals once the regulations for this program are effective. E file This new program will allow eligible employees to begin receiving annuity payments while working part-time. E file For more information, go to the Office of Personnel Management (OPM) website at www. E file opm. E file gov. E file Roth Thrift Savings Plan (TSP) balance. E file  You may be able to contribute to a designated Roth account through the TSP known as the Roth TSP. E file Roth TSP contributions are after-tax contributions, subject to the same contribution limits as the traditional TSP. E file Qualified distributions from a Roth TSP are not included in your income. E file See Thrift Savings Plan in Part II for more information. E file Rollovers. E file  You can roll over certain amounts from the CSRS, FERS, or TSP, to a tax-sheltered annuity plan (403(b) plan) or a state or local government section 457 deferred compensation plan. E file See Rollover Rules in Part II. E file Rollovers by surviving spouse. E file  You may be able to roll over a distribution you receive as the surviving spouse of a deceased employee or retiree into a qualified retirement plan or an IRA. E file See Rollover Rules in Part II. E file Thrift Savings Plan (TSP) beneficiary participant accounts. E file  If you are the spouse beneficiary of a decedent's TSP account, you have the option of leaving the death benefit payment in a TSP account in your own name (a beneficiary participant account). E file The amounts in the beneficiary participant account are neither taxable or reportable until you choose to make a withdrawal, or otherwise receive a distribution from the account. E file Benefits for public safety officer's survivors. E file  A survivor annuity received by the spouse, former spouse, or child of a public safety officer killed in the line of duty generally will be excluded from the recipient's income. E file For more information, see Dependents of public safety officers in Part IV. E file Uniformed services Thrift Savings Plan (TSP) accounts. E file  If you have a uniformed services TSP account, it may include contributions from combat zone pay. E file This pay is tax-exempt and contributions attributable to that pay are tax-exempt when they are distributed from the uniformed services TSP account. E file However, any earnings on those contributions are subject to tax when they are distributed. E file The statement you receive from the TSP will separately state the total amount of your distribution and the amount of your taxable distribution for the year. E file If you have both a civilian and a uniformed services TSP account, you should apply the rules discussed in this publication separately to each account. E file You can get more information from the TSP website, www. E file tsp. E file gov, or the TSP Service Office. E file Photographs of missing children. E file  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. E file Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. E file You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. E file Introduction This publication explains how the federal income tax rules apply to civil service retirement benefits received by retired federal employees (including those disabled) or their survivors. E file These benefits are paid primarily under the Civil Service Retirement System (CSRS) or the Federal Employees' Retirement System (FERS). E file Tax rules for annuity benefits. E file   Part of the annuity benefits you receive is a tax-free recovery of your contributions to the CSRS or FERS. E file The rest of your benefits are taxable. E file If your annuity starting date is after November 18, 1996, you must use the Simplified Method to figure the taxable and tax-free parts. E file If your annuity starting date is before November 19, 1996, you generally could have chosen to use the Simplified Method or the General Rule. E file See Part II, Rules for Retirees . E file Thrift Savings Plan. E file   The Thrift Savings Plan (TSP) provides federal employees with the same savings and tax benefits that many private employers offer their employees. E file This plan is similar to private sector 401(k) plans. E file You can defer tax on part of your pay by having it contributed to your traditional balance in the plan. E file The contributions and earnings on them are not taxed until they are distributed to you. E file Also the TSP offers a Roth TSP option. E file Contributions to this type of balance are after tax and qualified distributions from the account are tax free. E file See Thrift Savings Plan in Part II. E file Comments and suggestions. E file   We welcome your comments about this publication and your suggestions for future editions. E file   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. E file NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. E file Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. E file   You can send your comments from www. E file irs. E file gov/formspubs/. E file Click on “More Information” and then on “Comment on Tax Forms and Publications”. E file   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. E file Ordering forms and publications. E file   Visit www. E file irs. E file gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. E file Internal Revenue Service 1201 N. E file Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. E file   If you have a tax question, check the information available on IRS. E file gov or call 1-800-829-1040. E file We cannot answer tax questions sent to either of the above addresses. E file Useful Items - You may want to see: Publication 524 Credit for the Elderly or the Disabled 575 Pension and Annuity Income 590 Individual Retirement Arrangements (IRAs) 939 General Rule for Pensions and Annuities Form (and Instructions) CSA 1099R Statement of Annuity Paid CSF 1099R Statement of Survivor Annuity Paid W-4P Withholding Certificate for Pension or Annuity Payments 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. E file 5329 Additional Taxes on Qualified Plans (including IRAs) and Other Tax-Favored Accounts See How To Get Tax Help near the end of this publication for information about getting publications and forms. E file Prev  Up  Next   Home   More Online Publications