American Opportunity Tax Credit (AOTC) – Eligibility, 2022 Income and Phase-out Limits

The AOTC allows parents and students to receive a tax credit of up to $2,500 for qualified undergraduate college expenses, based on certain income limits. The AOTC replaced the smaller Hope credit a few years ago as part of bills passed under the Obama administration (see section below for origin).

The expanded credit will benefit almost 15 million families on an annual basis when it comes to paying for higher education costs.

The amount of the credit claimable is 100% of the first $2,000 of qualified education expenses, and then drops to 25% of the next $2,000 ($500) of qualified education expenses.

The credit is partially refundable, which means that if the credit brings the amount of tax you owe to zero, you can have 40 percent of any remaining amount of the credit (up to $1,000) refunded to you when filing your tax return.

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AOTC Income Qualification Thresholds

For 2022 your modified adjusted gross income (MAGI) must be $80,000 or less ($160,000 or less for married filing jointly) to qualify fully for this credit. These income limits are not inflation indexed and have not changed over the last few years.

You can receive a reduced amount of the AOTC credit if your MAGI is over $80,000 but less than $90,000 for single filers and over $160,000 but less than $180,000 for married filing jointly filers. 

You cannot claim the credit if your MAGI is over $90,000/$180,000 (single/joint filers).

AOTC Eligibility

To be eligible for AOTC, the student must (per TurboTax and the IRS)

  • Be pursuing a degree or other recognized education credential (i.e. be in an accredited tertiary institute). 
  • Be enrolled at least half time for at least one academic period beginning in the tax year
  • Not have finished the first four years of higher education at the beginning of the tax year – this limits the credit to undergraduate students
  • Not have claimed the AOTC or the former Hope credit for more than four tax years
  • Not have a felony drug conviction at the end of the tax year

To claim AOTC, you must complete the Form 8863 when filing your tax return. This can be done via most online tax filing software packages.

It is also important to carefully track and keep college payment documentation when claiming this credit. If the IRS audits your return and finds your AOTC claim is incorrect you may be required to pay back the entire amount of the AOTC you received in error, with interest.

AOTC Origin

Congress extended the American Opportunity Tax Credit (AOTC), which was initially created under the Recovery Act, for an additional two years as part of President Obama’s compromise tax cut package.

The AOTC allows parents and students to receive a tax credit of up to $2,500 for college expenses, based on certain income limits. The AOTC replaced the Hope credit for 2009 and 2010 and with this extension will continue to do so.

This education tax credit is expected to provide billions in tax relief to make college more affordable and 9.4 million families are expected to benefit from an average credit of $1,900.

The AOTC provides a $700 increase over the Hope credit it replaced and in addition allows students to apply it to the first four rather than two years of college.

It also covers text books, unlike past education tax credits.  In addition, the AOTC is partially refundable, meaning that families with no federal income tax liability can receive the credit. These families are expected to receive more than $4 billion in refunds from the AOTC in 2011.

For students claiming the maximum credit for four years of graduate or undergraduate school, the AOTC will provide up to $10,000 to help pay for the cost of college. The maximum available credit this year would cover about 80 percent of tuition and fees at the average two-year public institution, or about a third of tuition and fees at the average four-year public institution in 2011, according to a new Treasury analysis.

In addition, more families are eligible for larger credits because the income limits were expanded compared to the Hope credit. Families whose adjusted gross income (AGI) is $80,000 or less ($160,000 for married couples) will be eligible for the full credit. The credit is phased out for taxpayers with incomes above these levels and cannot be claimed for taxpayers with an AGI greater than $90,000 ($180,000 for joint filers) .

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1 thought on “American Opportunity Tax Credit (AOTC) – Eligibility, 2022 Income and Phase-out Limits”

  1. I’m currently in the process of obtaining my Bachelors Degree, I get a really great discount on tuition through my place of tuition is about $4k/yr

    My question is, this year I’ll gross ~$110k.. even with maxing out my 401k i’ll still be at ~$92k AGI.

    I’d really like to take advantage of the American Opportunity Tax Credit, but the income limit start phasing out at $80k agi, and are gone at $90k.

    Is there anything else I can do to lower my AGI, or, is there another deduction I could take advantage of to lower my tax owed..or do I just have to eat the tuition costs due to too high of income?


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