2016-2017 American Opportunity Education Tax Credit (AOTC) Extension – Eligibility, Income and Phase-out Limits

Congress and the Obama administration reached an agreement a few years ago that extended the American Opportunity Tax Credit (AOTC) through 2018. The AOTC allows parents and students to receive a tax credit of up to $2,500 for qualified college expenses, based on certain income limits. The AOTC replaced the smaller Hope credit (which would have been the only credit available had the fiscal cliff deal failed). The expanded credit will benefit almost 12 million families on an annual basis who will get an average credit of $1,900

For 2016-2017 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. You receive a reduced amount of the credit if your MAGI is over $80,000 but less than $90,000 (over $160,000 but less than $180,000 for married filing jointly). You cannot claim the credit if your MAGI is over $90,000 ($180,000 for joint filers).

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

  • Be pursuing a degree or other recognized education credential
  • 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
  • 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


[Prior updates] 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 for 2011 and 2012.  This education tax credit is expected to provide $18.2 billion in tax relief to make college more affordable next year, 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) .

Claiming the AOTC Credit – This tax credit is claimed using Form 8863, attached to your main tax return (form 1040 or 1040A)

Other initiatives the Administration has undertaken to make college more affordable and accessible, including simplifying the free application for Federal Student Aid and increasing Pell grants, which are the main source of federal aid for low-income students enrolled in institutions of higher education.

It is likely that the President, who is very pro-education, will introduce new education measures and incentives (tax credits) when the 2012 budget is announced.

Sources: Treasury Department

8 thoughts on “2016-2017 American Opportunity Education Tax Credit (AOTC) Extension – Eligibility, Income and Phase-out Limits

  1. Jonah

    I’m currently in the process of obtaining my Bachelors Degree, I get a really great discount on tuition through my place of employment..my 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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