American Opportunity Tax Credit – Definition

Cite this article as:"American Opportunity Tax Credit – Definition," in The Business Professor, updated January 10, 2020, last accessed October 20, 2020,


What is the American Opportunity Tax Credit?

The American Opportunity Tax Credit (AOTC) is a type of credit that helps students and households pay post-secondary education expenses. This is a credit for qualified education expenses paid for eligible students during the first four years of their higher education (post-secondary) education. Individual taxpayers that have students that are dependent on them can also claim the AOTC. Taxpayers or students can benefit from the AOTC. eligible students can get a tax credit up to $2500 on the first $4000 paid as education expenses.

A Little More on What is the American Opportunity Tax Credit

The American Opportunity Tax Credit (AOTC) is contained in Section 1004 of the American Recovery and Reinvestment Act of 2009. This tax credit provides relief for the education expenses of students in the first four years of post-secondary education.  This credit covers about two-thrid of the education expenses of students in universities while those in colleges have access to free education with the aid of the AOTC.

The AOTC was introduced in 2009 by Barrack Obama, a former president of the United States, this tax credit was scheduled to last till December 2017 but as of 2017, the tax credit did not change even under the 2017 Tax Cuts and Jobs Act.

Maximum American Opportunity Credit Claim

The maximum amount an eligible student can claim as the American Opportunity Tax Credit is $2500 of the first $4000 spent as eduction expenses. This tax credit relieves households of the expenses attributed to the post-secondary education of eligible students for the first four years of the education. For instance, if an eligible student spends $2000 on college entrance fee and purchase of materials, he can claim 100% of the amount spent, which means such a student as $500 left as a tax credit. This can be claimed on the next $2000 spent as education expenses.

Unlike other ta credits that are non-refundable, AITC is partially refundable up to 40%, this gives an eligible student to still receive 40% of the remaining credit after the tax liability has been reduced to zero.

American Opportunity Credit Eligibility

The eligibility criteria for the American Opportunity Tax Credit (AOTC) are set by the Internal Revenue Service. These eligibility criteria are;

  • The student must be enrolled in an accredited post-secondary institution at least part-time in one academic year.
  • The student must be taking degree courses or studying for other educational qualifications.
  • He/she must still be enrolled at the institution at the beginning of the tax year.
  • The student must not be a convict for a criminal offense.

There are also qualified expenses that the IRS speels out, on which tax credit can be paid, these are tuition fees, expenses for books, supplies, equipment and other materials meant for academic purposes.

American Opportunity Tax Credit vs. Lifetime Learning Credit

There are two major tax credits that students are eligible for in the United States, the first is the American Opportunity Tax Credit (AOTC) while the second is the Lifetime Learning Credit (LLC). The AOTC offers a maximum amount of $2500 of $4000 that can be claimed by students while the LLC offers up to $10, 000 credit. The LLC can be claimed by students in the following categories; part-time, full-time, undergraduate, graduate, or taking classes for a skill acquisition program.

Students or taxpayers are not allowed to claim both tax credits in the sale tax year. While the LLC is non-refundable, the AOTC is partially refundable.

Reference for ‚ÄúAmerican Opportunity Tax Credit‚ÄĚ ‚Äļ Personal Finance ‚Äļ Taxes ‚Äļ Income Tax Credits

Academics research on ‚ÄúAmerican Opportunity Tax Credit‚ÄĚ

[PDF] Higher Education Tax Benefits: Brief Overview and Budgetary Effects, Crandall-Hollick, M. L., & Keightley, M. P. (2012, July). Higher Education Tax Benefits: Brief Overview and Budgetary Effects. Library of Congress, Congressional Research Service.

[PDF] Tax Provisions in the American Taxpayer Relief Act of 2012 (ATRA), Nunns, J., Rohaly, J., & Center, U. B. T. P. (2013). Tax Provisions in the American Taxpayer Relief Act of 2012 (ATRA) The fiscal cliff debate culminated in the passage of the American Taxpayer Relief Act of 2012 (ATRA). ATRA makes permanent most of the tax cuts enacted in 2001 and 2003, permanently patches the alternative minimum tax, extends for five years the enhancements to individual income tax credits originally enacted in the 2009 stimulus legislation, and temporarily extends certain other tax provisions. This paper provides a detailed description of the individual, corporate, and estate tax provisions in ATRA.

[PDF] Trends in tax expenditures, 1985-2016, Rogers, A., Toder, E., & Center, U. B. T. P. (2011). Trends in tax expenditures, 1985-2016. Tax Policy Center, 3.

Tax benefits for college attendance, Dynarski, S., & Scott-Clayton, J. (2016). Tax benefits for college attendance (No. w22127). National Bureau of Economic Research.

Broken¬†tax¬†breaks? Evidence from a¬†tax credit¬†information experiment with 1,000,000 students, Bergman, P., Denning, J. T., & Manoli, D. (2017). Broken tax breaks? Evidence from a tax credit information experiment with 1,000,000 students. There is increasing evidence that tax credits for college do not affect college enrollment. This may be because prospective students do not know about tax benefits for credits or because the design of tax credits is not conducive to affecting educational outcomes. We focus on changing the salience of tax benefits by providing information about tax benefits for college using a sample of over 1 million students or prospective students in Texas. We sent emails and letters to students that described tax benefits for college and tracked college outcomes. For all three of our samples ‚Äď rising high school seniors, already enrolled students, and students who had previously applied to college but were not currently enrolled ‚Äď information about tax benefits for college did not affect enrollment or reenrollment. We test whether effects vary according to information frames and found that no treatment arms changed student outcomes. We conclude that salience is not the primary reason that tax credits for college do not affect enrollment.

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