The American Opportunity Tax Credit (AOTC): How Much Is It Worth?

This tax break, designed to recoup costs tied to your undergraduate degree, could be available to fewer folks under the House GOP’s version of Trump’s One Big Beautiful Bill Act.

The partisan megabill, which is about to go to the Senate and may face revisions, aims to require claimants of the American Opportunity Tax Act (AOTC) to have a Social Security number to be considered for the credit. GOP lawmakers are also proposing major cuts to public programs like SNAP and Medicaid to offset major tax breaks and the permanent extension of Trump’s Tax Cuts and Jobs Act of 2017.

So, what does this credit do? The AOTC is a partially refundable credit that qualifying students can use to recover certain expenses within their first four years of post-secondary education. As a partially refundable credit, you may be eligible for a refund if your tax liability is $0.

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The student, someone claiming the student as a dependent, or a spouse making qualifying education payments, can claim the AOTC on their tax return. While the credit won’t cover room and board expenses, it will help you with the cost of tuition and more.

Read on to learn more about the AOTC and how it can help you recover some costs tied to your higher education.

What is the American Opportunity Tax Credit?

With the American Opportunity Tax Credit (AOTC), you can claim qualified education expenses (such as tuition, certain required fees, and course materials) for the first 4 years of a post-secondary education at an accredited institution.

Once the 4 years are up, you can no longer claim the AOTC even if you are still pursuing your undergraduate degree, certificate, or other related credential.

As mentioned, the credit is partially refundable. That means that it can lower your tax liability to zero, and you can get a portion of the remaining credit back as a tax refund.

What is the credit amount for the AOTC?

• For tax years 2024 and 2025, the maximum annual credit amount is $2,500 per eligible student
• A maximum of 40% is the refundable portion (of any remaining credit, up to $1,000)
• The total of all qualified tuition and related expenses when calculating the AOTC cannot exceed $4,000

Additionally, the credit amount is equal to 100% of the first $2,000 of qualified education expenses per student claimed, plus 25% of the next $2,000 of qualified expenses you paid for that student.

In other words: If you have $4,000 in qualifying expenses, the AOTC will cover 100% of the first $2,000 and 25% of the additional $2,000. That is equal to a maximum credit amount of $2,500.

What’s happening to the American Opportunity Tax Credit?

House Republicans passed their partisan megabill this month, which would cut trillions of dollars in taxes while scaling back safety net programs such as SNAP and Medicaid.

The reconciliation measure, known as the ‘One, Big Beautiful Bill Act’, covers border security, energy policy, and tax cuts. Some tax proposals call for eliminating taxes on tips and on overtime pay, as well as making Trump’s Tax Cuts and Jobs Act of 2017 (TCJA) permanent.

To make it happen, the tax breaks are offset by spending cuts and adjustments to tax credits, such as the American Opportunity Tax Credit. However, it’s important to note that this is merely the House version of Trump’s agenda. The U.S. Senate will take up the bill early this summer and likely make changes to many provisions.

However, if the House version is enacted into law, the AOTC would have limits for undocumented immigrants.

In other words, claimants of the AOTC and Lifetime Learning Credit would need to have a Social Security number. This would apply to their spouses and children if applicable, effective in 2026.

According to the Bipartisan Policy Center, preventing undocumented immigrants from claiming tax breaks from the AOTC and other programs like the Premium Tax Credit would raise $118 billion over a decade.

For more information on which tax breaks are slated to change under Trump’s tax agenda, see: Key Family Tax Breaks Are on the GOP Chopping Block This Year.

Who is eligible for the American Opportunity Tax Credit?

To qualify for the AOTC, you’ll have to meet several standards regarding your enrollment status, the type of institution you are attending, and your income.

The credit can be claimed by an eligible student, your spouse (if filing jointly), or a dependent you claim on your tax return. That being said, let’s dive in.

Student requirements:

To be eligible for the AOTC, students must be enrolled in a post-secondary institution program conducive to a degree, certificate, or other recognized credential and meet the following conditions:

• They are enrolled at least half-time in a post-secondary institution that satisfies the requirements to participate in the U.S. Department of Education Program
• The credit is claimed during the first four years of post-secondary education
• The student does not have a felony drug conviction at the end of the tax year

According to the IRS, academic periods can be semesters, trimesters, quarters, or any other period of study, including summer school. Some academic institutions may also count credit hours as an academic period.

As noted, eligibility standards may tighten if Trump’s legislative tax package is enacted into law. Those impacted would be individuals without a Social Security number.

Income limits for the AOTC

The AOTC has an income threshold based on your tax filing status. For tax years 2024 and 2025, the credit phases out if you have a modified adjusted gross income (MAGI) of:

As mentioned, the taxpayer claiming the AOTC can only claim the credit for a maximum of four years.

Other taxpayer requirements:

To claim the AOTC, you, your spouse (if filing jointly), or the qualifying student must have a valid taxpayer identification number (TIN) issued or applied by the due date of the return.

What counts as a taxpayer identification number?

• A Social Security number
• An individual taxpayer identification number (ITIN) or,
• An adoption taxpayer identification number (ATIN)

What are qualified education expenses for the AOTC?

While the American Opportunity Tax Credit can help offset some costs related to your post-secondary education, it won’t cover all your expenses. That’s because other education tax credits are designed to target some of those expenditures.

Qualifying expenses for the AOTC include:

• Tuition
• Required enrollment fees
• Course materials, such as books or supplies

Note: A qualifying education expense may include a computer if you need it for attendance at your educational institution.

The AOTC does not cover the costs associated with:

• Room and board
• Transportation
• Medical expenses
• Insurance
• Student fees, unless required as a condition of enrollment or attendance

How you pay for your qualified education expenses could also impact your eligibility.

You won’t be able to claim the AOTC if the qualifying education expenses have already been paid with tax-free educational assistance, a scholarship, an employer-assistance program, a 529 college savings plan, or a federal grant like the Pell Grant.

However, you may use the credit if you paid for qualified education expenses with borrowed funds like a credit card, student loan, or personal funds.

You can’t claim the same expenses twice.

While the AOTC can help you recover some qualified education expenses, it’s not the only education tax credit available to you.

For instance, if you are claiming some expenses with the Lifetime Learning Credit, you can’t claim those same expenses under the American Opportunity Tax Credit.

How to claim the American Opportunity Tax Credit

To claim your qualified educational expenses through the AOTC, you must have received an IRS Form 1098-T, Tuition Statement, from an eligible educational institution. According to the IRS, students usually receive their Form 1098-T from their school by January 31.

You should also include the following tax documents attached to your Form 1040 or 1040-SR:

• You must fill out Form 8863, Education Credits (for the AOTC and/or the Lifetime Learning Credits).
• The law requires you to include your school’s Employer Identification Number on Form 8863

What happens if my AOTC is incorrect?

When claiming your qualified education expenses, it’s best to keep a record or receipt of your transactions to avoid errors.

If the IRS audits and finds that it issued an incorrect payment and you don’t have the relevant documents to prove your expense, there are consequences:

• You must pay back the amount of AOTC received in error with interest
• You may be charged with an accuracy or fraud penalty
• You could be banned from the AOTC for two to ten years

Why is the American Opportunity Act important?

With the rising costs of tuition, books, and school materials, getting some of that money back can be a valuable resource for students.

The AOTC is a tax break that can reduce the cost of attending an accredited post-secondary institution during the first four years of your degree, typically for undergraduates.

If you are a student who meets all the requirements, you can gain up to $2,500 of annual college expenses. Since it’s a partially refundable tax credit, you can get up to 40% of that amount as a tax refund.

Eligibility standards may soon change for this tax break under President Trump’s 2025 tax reform plan, so stay tuned for updates.

Related Content

• 12 Education Tax Credits and Deductions
• The $2,500 Tax Break for Paying Your Student Loan
• IRS: How to Get a 401(k) Match for Your Student Loan Payment