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Understanding Your CP75D Notice

We’re auditing your tax return and we need documentation to verify the income and withholding you reported on your tax return. This may affect your eligibility for the Earned Income Credit (EIC), dependent exemption(s) and other refundable credits that you claimed. We are holding your refund pending the results of the audit.


What you need to do

  • Read the notice and the enclosed forms carefully. They explain the information you must send to us.
  • Provide copies of supporting documentation to verify the items we're auditing.
  • Complete the response form by indicating which items your supporting documentation addresses on the copies you're submitting and return the form with the documents you are submitting.

You may want to


Answers to Common Questions

Why was my return selected for audit?
While most returns are accepted as filed, some are selected for examination. The IRS examines (or audits) some federal tax returns to determine if income, expenses, and credits are reported accurately. The IRS selects returns for examination using various methods which include random sampling, computerized screening, and comparison of information received by the IRS such as Forms W-2 and 1099. Having your return selected for examination doesn't suggest you made an error or were dishonest.

Why are my wages being audited?
The amounts you reported on the wages and withholding lines of your tax return appear incorrect.

Can I claim the earned income credit for my fiancé’s child?
No. You must be married to the child’s parent during the tax year in question to receive EIC.

What do I need to send?
Refer to the applicable Form 886-H and Form 886-L you received with your notice. There is a separate form for each item being audited that explains what supporting documentation to send.

What if I can’t provide the requested documentation?
We’ll disallow the items being audited and send you an examination report that shows the proposed changes to your tax return.

What if I did not file a tax return claiming the items you are questioning and someone else is using my name and social security number?
Contact us at the number listed on the top right corner of your notice. You can also refer to the IRS Identity Theft resource page for more information.

Can I file my tax return while I am being audited?
Yes, you should continue to file all required tax returns before the due date to avoid additional penalties and interest.


Tips for next year

Avoid errors that can delay your refund or result in IRS denying your EITC claim. Find out the most common errors in claiming EITC here.

Page Last Reviewed or Updated: 07-Mar-2014

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The Where To File Taxes For Free

Where to file taxes for free 2. Where to file taxes for free   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. Where to file taxes for free 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. Where to file taxes for free They are the American opportunity credit (this chapter) and the lifetime learning credit ( chapter 3 ). Where to file taxes for free 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. Where to file taxes for free What is the tax benefit of the American opportunity credit. Where to file taxes for free   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. Where to file taxes for free   A tax credit reduces the amount of income tax you may have to pay. Where to file taxes for free Unlike a deduction, which reduces the amount of income subject to tax, a credit directly reduces the tax itself. Where to file taxes for free Forty percent of the American opportunity credit may be refundable. Where to file taxes for free This means that if the refundable portion of your credit is more than your tax, the excess will be refunded to you. Where to file taxes for free   Your allowable American opportunity credit may be limited by the amount of your income. Where to file taxes for free Also, the nonrefundable part of the credit may be limited by the amount of your tax. Where to file taxes for free Overview of the American opportunity credit. Where to file taxes for free   See Table 2-1, Overview of the American Opportunity Credit , for the basics of this credit. Where to file taxes for free The details are discussed in this chapter. Where to file taxes for free Can you claim more than one education credit this year. Where to file taxes for free   For each student, you can elect for any year only one of the credits. Where to file taxes for free 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. Where to file taxes for free   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. Where to file taxes for free 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. Where to file taxes for free 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. Where to file taxes for free Differences between the American opportunity and lifetime learning credits. Where to file taxes for free   There are several differences between these two credits. Where to file taxes for free 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. Where to file taxes for free 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. Where to file taxes for free 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. Where to file taxes for free 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. Where to file taxes for free If you have the choice, the American opportunity credit will always be greater than the lifetime learning credit. Where to file taxes for free Table 2-1. Where to file taxes for free 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. Where to file taxes for free Who Can Claim the Credit Generally, you can claim the American opportunity credit if all three of the following requirements are met. Where to file taxes for free You pay qualified education expenses of higher education. Where to file taxes for free You pay the education expenses for an eligible student. Where to file taxes for free The eligible student is either yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. Where to file taxes for free Student qualifications. Where to file taxes for free   Generally, you can take the American opportunity credit for a student only if all of the following four requirements are met. Where to file taxes for free 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. Where to file taxes for free For this purpose, do not include academic credit awarded solely because of the student's performance on proficiency examinations. Where to file taxes for free 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. Where to file taxes for free 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. Where to file taxes for free 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. Where to file taxes for free The standard for what is half of the normal full-time work load is determined by each eligible educational institution. Where to file taxes for free However, the standard may not be lower than any of those established by the U. Where to file taxes for free S. Where to file taxes for free Department of Education under the Higher Education Act of 1965. Where to file taxes for free 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. Where to file taxes for free See Prepaid expenses, later. Where to file taxes for free 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. Where to file taxes for free Example 1. Where to file taxes for free Sharon was eligible for the Hope Scholarship Credit for 2007 and 2008 and for the American opportunity credit for 2010 and 2012. Where to file taxes for free 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. Where to file taxes for free Sharon claimed the American opportunity credit on her 2012 tax return. Where to file taxes for free The American opportunity credit and Hope Scholarship Credit have been claimed for Sharon for four tax years before 2013. Where to file taxes for free Therefore, the American opportunity credit cannot be claimed by Sharon for 2013. Where to file taxes for free 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. Where to file taxes for free Example 2. Where to file taxes for free Wilbert was eligible for the American opportunity credit for 2009, 2010, 2011, and 2013. Where to file taxes for free His parents claimed the American opportunity credit for Wilbert on their tax returns for 2009, 2010, and 2011. Where to file taxes for free No one claimed an American opportunity credit or Hope Scholarship Credit for Wilbert for any other tax year. Where to file taxes for free The American opportunity credit and Hope Scholarship Credit have been claimed for Wilbert for only three tax years before 2013. Where to file taxes for free Therefore, Wilbert meets the second requirement to be eligible for the American opportunity credit. Where to file taxes for free If Wilbert were to file Form 8863 for 2013, he would check “No” for Part III, line 23. Where to file taxes for free If Wilbert meets all of the other requirements, he is eligible for the American opportunity credit. Where to file taxes for free Example 3. Where to file taxes for free Glenda enrolls on a full-time basis in a degree program for the 2014 Spring semester, which begins in January 2014. Where to file taxes for free Glenda pays her tuition for the 2014 Spring semester in December 2013. Where to file taxes for free 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. Where to file taxes for free If the requirements above are not met for any student, you cannot take the American opportunity credit for that student. Where to file taxes for free You may be able to take the lifetime learning credit for part or all of that student's qualified education expenses instead. Where to file taxes for free Note. Where to file taxes for free 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. Where to file taxes for free “Qualified education expenses” are defined later under Qualified Education Expenses . Where to file taxes for free “Eligible students” are defined later under Who Is an Eligible Student . Where to file taxes for free A dependent for whom you claim an exemption is defined later under Who Can Claim a Dependent's Expenses . Where to file taxes for free 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. Where to file taxes for free This image is too large to be displayed in the current screen. Where to file taxes for free Please click the link to view the image. Where to file taxes for free 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. Where to file taxes for free Your filing status is married filing separately. Where to file taxes for free You are listed as a dependent on another person's tax return (such as your parents'). Where to file taxes for free See Who Can Claim a Dependent's Expenses , later. Where to file taxes for free Your modified adjusted gross income (MAGI) is $90,000 or more ($180,000 or more in the case of a joint return). Where to file taxes for free MAGI is explained later under Effect of the Amount of Your Income on the Amount of Your Credit . Where to file taxes for free 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. Where to file taxes for free More information on nonresident aliens can be found in Publication 519, U. Where to file taxes for free S. Where to file taxes for free Tax Guide for Aliens. Where to file taxes for free 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. Where to file taxes for free 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. Where to file taxes for free 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. Where to file taxes for free Academic period. Where to file taxes for free   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. Where to file taxes for free 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. Where to file taxes for free Paid with borrowed funds. Where to file taxes for free   You can claim an American opportunity credit for qualified education expenses paid with the proceeds of a loan. Where to file taxes for free 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. Where to file taxes for free Treat loan payments sent directly to the educational institution as paid on the date the institution credits the student's account. Where to file taxes for free Student withdraws from class(es). Where to file taxes for free   You can claim an American opportunity credit for qualified education expenses not refunded when a student withdraws. Where to file taxes for free 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. Where to file taxes for free Eligible educational institution. Where to file taxes for free   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. Where to file taxes for free S. Where to file taxes for free Department of Education. Where to file taxes for free It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Where to file taxes for free The educational institution should be able to tell you if it is an eligible educational institution. Where to file taxes for free   Certain educational institutions located outside the United States also participate in the U. Where to file taxes for free S. Where to file taxes for free Department of Education's Federal Student Aid (FSA) programs. Where to file taxes for free Related expenses. Where to file taxes for free   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. Where to file taxes for free   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. Where to file taxes for free Prepaid expenses. Where to file taxes for free   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. Where to file taxes for free See Academic period, earlier. Where to file taxes for free 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). Where to file taxes for free    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). Where to file taxes for free   In the following examples, assume that each student is an eligible student at an eligible educational institution. Where to file taxes for free Example 1. Where to file taxes for free Jefferson is a sophomore in University V's degree program in dentistry. Where to file taxes for free 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. Where to file taxes for free Because the equipment rental is needed for his course of study, Jefferson's equipment rental fee is a qualified expense. Where to file taxes for free Example 2. Where to file taxes for free 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. Where to file taxes for free 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. Where to file taxes for free William bought his books from a friend; Grace bought hers at College W's bookstore. Where to file taxes for free Both are qualified education expenses for the American opportunity credit. Where to file taxes for free Example 3. Where to file taxes for free When Kelly enrolled at College X for her freshman year, she had to pay a separate student activity fee in addition to her tuition. Where to file taxes for free 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. Where to file taxes for free No portion of the fee covers personal expenses. Where to file taxes for free 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. Where to file taxes for free No Double Benefit Allowed You cannot do any of the following. Where to file taxes for free 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. Where to file taxes for free Claim an American opportunity credit in the same year that you are claiming a tuition and fees deduction for the same student. Where to file taxes for free Claim an American opportunity credit for any student and use any of that student's expenses in figuring your lifetime learning credit. Where to file taxes for free 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. Where to file taxes for free 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. Where to file taxes for free 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. Where to file taxes for free See Adjustments to Qualified Education Expenses, next. Where to file taxes for free 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. Where to file taxes for free The result is the amount of adjusted qualified education expenses for each student. Where to file taxes for free Tax-free educational assistance. Where to file taxes for free   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. Where to file taxes for free See Academic period, earlier. Where to file taxes for free   Some tax-free educational assistance received after 2013 may be treated as a refund of qualified education expenses paid in 2013. Where to file taxes for free 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). Where to file taxes for free   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. Where to file taxes for free 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. Where to file taxes for free   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). Where to file taxes for free 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. Where to file taxes for free Generally, any scholarship or fellowship is treated as tax free. Where to file taxes for free 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. Where to file taxes for free 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. Where to file taxes for free 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. Where to file taxes for free 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. Where to file taxes for free For examples, see Coordination with Pell grants and other scholarships, later. Where to file taxes for free Refunds. Where to file taxes for free   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. Where to file taxes for free Some tax-free educational assistance received after 2013 may be treated as a refund. Where to file taxes for free See Tax-free educational assistance, earlier. Where to file taxes for free Refunds received in 2013. Where to file taxes for free   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. Where to file taxes for free Refunds received after 2013 but before your income tax return is filed. Where to file taxes for free   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. Where to file taxes for free Refunds received after 2013 and after your income tax return is filed. Where to file taxes for free   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. Where to file taxes for free See Credit recapture, next. Where to file taxes for free Credit recapture. Where to file taxes for free    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. Where to file taxes for free 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. Where to file taxes for free 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). Where to file taxes for free Include that amount as an additional tax for the year the refund or tax-free assistance was received. Where to file taxes for free Example. Where to file taxes for free   You paid $7,000 tuition and fees in August 2013, and your child began college in September 2013. Where to file taxes for free You filed your 2013 tax return on February 17, 2014, and claimed an American opportunity credit of $2,500. Where to file taxes for free After you filed your return, you received a refund of $4,000. Where to file taxes for free You must refigure your 2013 American opportunity credit using $3,000 of qualified education expenses instead of $7,000. Where to file taxes for free The refigured credit is $2,250. Where to file taxes for free The increase to your tax liability is also $250. Where to file taxes for free Include the difference of $250 as additional tax on your 2014 tax return. Where to file taxes for free See the instructions for your 2014 income tax return to determine where to include this tax. Where to file taxes for free 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. Where to file taxes for free Amounts that do not reduce qualified education expenses. Where to file taxes for free   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. Where to file taxes for free   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. Where to file taxes for free 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. Where to file taxes for free The use of the money is not restricted. Where to file taxes for free Example 1. Where to file taxes for free Joan paid $3,000 for tuition and $5,000 for room and board at University X. Where to file taxes for free The university did not require her to pay any fees in addition to her tuition in order to enroll in or attend classes. Where to file taxes for free To help pay these costs, she was awarded a $2,000 scholarship and a $4,000 student loan. Where to file taxes for free The terms of the scholarship state that it can be used to pay any of Joan's college expenses. Where to file taxes for free 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. Where to file taxes for free Joan does not report any portion of the scholarship as income on her tax return. Where to file taxes for free 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. Where to file taxes for free 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. Where to file taxes for free Joan is treated as having paid $1,000 in qualified education expenses ($3,000 tuition – $2,000 scholarship). Where to file taxes for free Example 2. Where to file taxes for free The facts are the same as in Example 1, except that Joan reports her entire scholarship as income on her tax return. Where to file taxes for free Because Joan reported the entire $2,000 scholarship in her income, she does not need to reduce her qualified education expenses. Where to file taxes for free Joan is treated as having paid $3,000 in qualified education expenses. Where to file taxes for free Coordination with Pell grants and other scholarships. Where to file taxes for free   In some cases, you may be able to reduce your tax liability by including scholarships in income. Where to file taxes for free 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. Where to file taxes for free The scholarship must be one that may (by its terms) be applied to expenses (such as room and board) other than qualified education expenses. Where to file taxes for free Example 1—No scholarship. Where to file taxes for free 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. Where to file taxes for free This was his first year of postsecondary education. Where to file taxes for free During 2013, he paid $5,600 for his qualified education expenses and $4,400 for his room and board for the fall 2013 semester. Where to file taxes for free He and the college meet all the requirements for the American opportunity credit. Where to file taxes for free Bill's AGI and his MAGI, for purposes of figuring his credit, are $30,000. Where to file taxes for free Bill takes the standard deduction of $5,950 and personal exemption of $3,800, reducing his AGI to taxable income of $20,250. Where to file taxes for free His income tax liability, before credits, is $2,599 and Bill claims no credits other than the American opportunity credit. Where to file taxes for free 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. Where to file taxes for free Example 2—Scholarship excluded from income. Where to file taxes for free The facts are the same as in Example 1—No scholarship, except that Bill was awarded a $5,600 scholarship. Where to file taxes for free Under the terms of his scholarship, it may be used to pay any educational expenses, including room and board. Where to file taxes for free 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. Where to file taxes for free His adjusted qualified education expenses will be zero and he will not have an education credit. Where to file taxes for free Therefore, Bill's tax after credits would be $2,599. Where to file taxes for free Example 3—Scholarship partially included in income. Where to file taxes for free The facts are the same as in Example 2—Scholarship excluded from income. Where to file taxes for free 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. Where to file taxes for free 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. Where to file taxes for free 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. Where to file taxes for free 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. Where to file taxes for free 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. Where to file taxes for free This is true even if the amount must be paid to the institution as a condition of enrollment or attendance. Where to file taxes for free Sports, games, hobbies, and noncredit courses. Where to file taxes for free   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. Where to file taxes for free However, if the course of instruction or other education is part of the student's degree program, these expenses can qualify. Where to file taxes for free Comprehensive or bundled fees. Where to file taxes for free   Some eligible educational institutions combine all of their fees for an academic period into one amount. Where to file taxes for free 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. Where to file taxes for free 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. Where to file taxes for free See Figuring the Credit , later, for more information about Form 1098-T. Where to file taxes for free 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. Where to file taxes for free This is a student who meets all of the following requirements. Where to file taxes for free The student did not have expenses that were used to figure an American opportunity credit in any 4 earlier tax years. Where to file taxes for free This includes any tax year(s) in which you claimed the Hope Scholarship Credit for the same student. Where to file taxes for free The student had not completed the first 4 years of postsecondary education (generally, the freshman, sophomore, junior, and senior years of college) before 2013. Where to file taxes for free 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. Where to file taxes for free 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. Where to file taxes for free These requirements are also shown in Figure 2-2, Who is an Eligible Student for the American Opportunity Credit , later. Where to file taxes for free Completion of first 4 years. Where to file taxes for free   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. Where to file taxes for free This student generally would not be an eligible student for purposes of the American opportunity credit. Where to file taxes for free Exception. Where to file taxes for free   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. Where to file taxes for free Enrolled at least half-time. Where to file taxes for free   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. Where to file taxes for free   The standard for what is half of the normal full-time work load is determined by each eligible educational institution. Where to file taxes for free However, the standard may not be lower than any of those established by the U. Where to file taxes for free S. Where to file taxes for free Department of Education under the Higher Education Act of 1965. Where to file taxes for free Please click here for the text description of the image. Where to file taxes for free Figure 2-2 Example 1. Where to file taxes for free Mack graduated from high school in June 2012. Where to file taxes for free 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. Where to file taxes for free For the 2013 fall semester, Mack was enrolled less than half-time. Where to file taxes for free 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). Where to file taxes for free Example 2. Where to file taxes for free 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. Where to file taxes for free 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. Where to file taxes for free 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. Where to file taxes for free 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. Where to file taxes for free Example 3. Where to file taxes for free During the 2012 fall semester, Larry was a high school student who took classes on a half-time basis at College X. Where to file taxes for free 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. Where to file taxes for free Because Larry was not enrolled in a degree program at College X during 2012, Larry was not an eligible student for tax year 2012. Where to file taxes for free Example 4. Where to file taxes for free The facts are the same as in Example 3. Where to file taxes for free During the 2013 spring semester, Larry again attended College X but not as part of a degree program. Where to file taxes for free Larry graduated from high school in June 2013. Where to file taxes for free 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. Where to file taxes for free 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. Where to file taxes for free 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. Where to file taxes for free Example 5. Where to file taxes for free Dee graduated from high school in June 2012. Where to file taxes for free 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. Where to file taxes for free Dee completed the program in December 2013, and was awarded a certificate. Where to file taxes for free 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. Where to file taxes for free 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. Where to file taxes for free 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. Where to file taxes for free For you to claim an American opportunity credit for your dependent's expenses, you must also claim an exemption for your dependent. Where to file taxes for free You do this by listing your dependent's name and other required information on Form 1040 (or Form 1040A), line 6c. Where to file taxes for free IF you. Where to file taxes for free . Where to file taxes for free . Where to file taxes for free THEN only. Where to file taxes for free . Where to file taxes for free . Where to file taxes for free 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. Where to file taxes for free The dependent cannot claim the credit. Where to file taxes for free 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. Where to file taxes for free You cannot claim the credit based on this dependent's expenses. Where to file taxes for free Expenses paid by dependent. Where to file taxes for free   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. Where to file taxes for free Include these expenses when figuring the amount of your American opportunity credit. Where to file taxes for free    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. Where to file taxes for free Expenses paid by you. Where to file taxes for free   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. Where to file taxes for free 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. Where to file taxes for free Expenses paid by others. Where to file taxes for free   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. Where to file taxes for free In this case, the student is treated as receiving the payment from the other person and, in turn, paying the institution. Where to file taxes for free If you claim an exemption on your tax return for the student, you are considered to have paid the expenses. Where to file taxes for free Example. Where to file taxes for free In 2013, Ms. Where to file taxes for free Allen makes a payment directly to an eligible educational institution for her grandson Todd's qualified education expenses. Where to file taxes for free 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. Where to file taxes for free 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. Where to file taxes for free 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. Where to file taxes for free If anyone else claims an exemption for Todd, Todd cannot claim an American opportunity credit. Where to file taxes for free Tuition reduction. Where to file taxes for free    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. Where to file taxes for free 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. Where to file taxes for free For more information on tuition reductions, see Qualified Tuition Reduction in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Where to file taxes for free 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. Where to file taxes for free The maximum amount of American opportunity credit you can claim in 2013 is $2,500 multiplied by the number of eligible students. Where to file taxes for free You can claim the full $2,500 for each eligible student for whom you paid at least $4,000 of adjusted qualified education expenses. Where to file taxes for free However, the credit may be reduced based on your MAGI. Where to file taxes for free See Effect of the Amount of Your Income on the Amount of Your Credit , later. Where to file taxes for free Example. Where to file taxes for free Jack and Kay Ford are married and file a joint tax return. Where to file taxes for free For 2013, they claim an exemption for their dependent daughter on their tax return. Where to file taxes for free Their MAGI is $70,000. Where to file taxes for free Their daughter is in her junior (third) year of studies at the local university. Where to file taxes for free Jack and Kay paid qualified education expenses of $4,300 in 2013. Where to file taxes for free Jack and Kay, their daughter, and the local university meet all of the requirements for the American opportunity credit. Where to file taxes for free Jack and Kay can claim a $2,500 American opportunity credit in 2013. Where to file taxes for free This is 100% of the first $2,000 of qualified education expenses, plus 25% of the next $2,000. Where to file taxes for free Form 1098-T. Where to file taxes for free   To help you figure your American opportunity credit, the student should receive Form 1098-T, Tuition Statement. Where to file taxes for free 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. Where to file taxes for free An institution may choose to report either payments received (box 1), or amounts billed (box 2), for qualified education expenses. Where to file taxes for free However, the amounts in boxes 1 and 2 of Form 1098-T might be different than what you paid. Where to file taxes for free When figuring the credit, use only the amounts you paid or are deemed to have paid in 2013 for qualified education expenses. Where to file taxes for free   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. Where to file taxes for free    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. Where to file taxes for free 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). Where to file taxes for free 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). Where to file taxes for free Modified adjusted gross income (MAGI). Where to file taxes for free   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return. Where to file taxes for free MAGI when using Form 1040A. Where to file taxes for free   If you file Form 1040A, your MAGI is the AGI on line 22 of that form. Where to file taxes for free MAGI when using Form 1040. Where to file taxes for free   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. Where to file taxes for free You can use Worksheet 2-1, next, to figure your MAGI. Where to file taxes for free    Worksheet 2-1. Where to file taxes for free MAGI for the American Opportunity Credit 1. Where to file taxes for free Enter your adjusted gross income  (Form 1040, line 38)   1. Where to file taxes for free   2. Where to file taxes for free Enter your foreign earned income exclusion and/or housing exclusion (Form 2555, line 45, or Form 2555-EZ, line 18)   2. Where to file taxes for free       3. Where to file taxes for free Enter your foreign housing deduction (Form 2555, line 50)   3. Where to file taxes for free       4. Where to file taxes for free Enter the amount of income from Puerto Rico you are excluding   4. Where to file taxes for free       5. Where to file taxes for free Enter the amount of income from American Samoa you are excluding (Form 4563, line 15)   5. Where to file taxes for free       6. Where to file taxes for free Add the amounts on lines 2, 3, 4, and 5   6. Where to file taxes for free   7. Where to file taxes for free Add the amounts on lines 1 and 6. Where to file taxes for free  This is your modified adjusted  gross income. Where to file taxes for free Enter here and  on Form 8863, line 3   7. Where to file taxes for free   Phaseout. Where to file taxes for free   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. Where to file taxes for free The same method is shown in the following example. Where to file taxes for free Example. Where to file taxes for free You are filing a joint return and your MAGI is $165,000. Where to file taxes for free In 2013, you paid $5,000 of qualified education expenses. Where to file taxes for free 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). Where to file taxes for free 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. Where to file taxes for free The numerator of the fraction is $180,000 (the upper limit for those filing a joint return) minus your MAGI. Where to file taxes for free The denominator is $20,000, the range of incomes for the phaseout ($160,000 to $180,000). Where to file taxes for free The result is the amount of your phased out (reduced) American opportunity credit ($1,875). Where to file taxes for free      $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. Where to file taxes for free 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. Where to file taxes for free Instead, your allowed credit (figured on Form 8863, Part II) will be used to reduce your tax as a nonrefundable credit only. Where to file taxes for free You do not qualify for a refund if items 1 (a, b, or c), 2, and 3 below apply to you. Where to file taxes for free 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). Where to file taxes for free At least one of your parents was alive at the end of 2013. Where to file taxes for free You are filing a return as single, head of household, qualifying widow(er), or married filing separately for 2013. Where to file taxes for free Earned income. Where to file taxes for free   Earned income includes wages, salaries, professional fees, and other payments received for personal services actually performed. Where to file taxes for free 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. Where to file taxes for free 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. Where to file taxes for free   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). Where to file taxes for free However, if capital is not an income-producing factor and your personal services produced the business income, the 30% limit does not apply. Where to file taxes for free Support. Where to file taxes for free   Your support includes food, shelter, clothing, medical and dental care, education, and the like. Where to file taxes for free Generally, the amount of the item of support will be the amount of expenses incurred by the one furnishing such item. Where to file taxes for free 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. Where to file taxes for free However, a scholarship received by you is not considered support if you are a full-time student. Where to file taxes for free See Publication 501 for details. Where to file taxes for free Full-time student. Where to file taxes for free   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. Where to file taxes for free Claiming the Credit You claim the American opportunity credit by completing Form 8863 and submitting it with your Form 1040 or 1040A. Where to file taxes for free Enter the nonrefundable part of the credit on Form 1040, line 49, or on Form 1040A, line 31. Where to file taxes for free Enter the refundable part of the credit on Form 1040, line 66, or on Form 1040A, line 40. Where to file taxes for free A filled-in Form 8863 is shown at the end of this publication. Where to file taxes for free Note. Where to file taxes for free In Appendix A. Where to file taxes for free 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. Where to file taxes for free Prev  Up  Next   Home   More Online Publications