American Opportunity Credit

[mactoolsix]

Getting back to the original posted question

If I am 20 years old, earned income = $9,300, both parents alive, 1/2 time single student. Do I qualify for a refund?

Well it depends – you meet the “non-qualifying” rules #2 (one parent alive) & 3 (filing single).

If you also meet #1, you would not qualify for a refund.

1a. Under 18? – no, go to 1b
1b. Is $9,300 < 1/2 your support? food, lodging, clothing, education, medical and dental care, recreation, transportation, and similar necessities. Since $9,300 = $25 @ day, I think it is obvious that $9,300 < 1/2 the support for a year. So, YES – passed #1b, so you DO NOT qualify.

Note: since we never got to rule #1c, full-time or half-time workload was immaterial.


Here's the rules:
You do not qualify for a refund if 1 (a, b, or c), 2, and 3 below apply to you. (All 3 must apply)

1. You were:
a. Under 18 on Dec. 31st, or
b. Age 18 and your earned income < 1/2 your support, or
c. Over 18 and under 24 on Dec. 31st, a full time student, and earned income < 1/2 your support.

2. At least one parent was alive on Dec. 31st.

3. You are not filing a joint return for 2011

Logic - If he had provided more than 1/2 his support, he would fail tests 1b & 1c (even if he were a full-time student). So, get a better paying job and you lose the possibility of a refund. If your income is < 1/2 your support requirements, and if both parents are dead and you don't file a joint return, I guess you need some assistance.

[dtlee]

A number of people have expressed one of the criteria for the refundable part as "providing more than half their support with earned income."

That's not the way I read it. I read it as "their earned income must be at least half the amount of their support, whether or not they use it for support." So, in theory, a child actor could earn $200K, put it all into investments, and still be eligible to be claimed as a dependent by his parents - which would make sense, since $200K is too high to get the credit.

Thank you for pointing this out.

After reading the code, I have a slightly different perspective. I agree that the funds need not be used for support, but have trouble agreeing with the greater than portion.

The code basically says that someone is ineligible for the refundable portion if the individual meets the eligibility rules for the Kiddie Tax. In other words, if the Kiddie Tax would apply, they cannot get the refundable portion. If they do not apply, they can. Those rules apply to a child "whose earned income (as defined in section 911(d)(2)) for such taxable year does not exceed one-half of the amount of the individual's support (within the meaning of section 152(c)(1)(D) after the application of section 152(f)(5) (without regard to subparagraph (A) thereof)) for such taxable year,"

So, the Kiddie Tax subsection applies to a certain children if their earned income does not exceed one-half of their support. In other words, the Kiddie Tax subsection does not apply if the earned income does exceed one-half of their support (contrapositive).

Thus, I take this to mean that the refundable credit is allowed when the earned income exceeds one-half of the total support (without regard to how the funds are used).

I do not know how they could have made this any more convoluted.

[Gary2]

A number of people have expressed one of the criteria for the refundable part as "providing more than half their support with earned income."

That's not the way I read it. I read it as "their earned income must be at least half the amount of their support, whether or not they use it for support." So, in theory, a child actor could earn $200K, put it all into investments, and still be eligible to be claimed as a dependent by his parents - which would make sense, since $200K is too high to get the credit.

[dtlee]

Thanks for all the comments and explainations. Dan I didn't assume the 9 credit hours is not full time according to the college he attends he IS NOT full time. dtlee you are correct this client is not a qualifing child and your explaination is what I also understand of this credit. dtlee I believe you are correct in saying the correct box on her tax program may not be filled out or she missed something as I pointed that out to her yesterday. Thanks BP it is good to know I am not the only "tax pro" that does that.

Donna,

Another possibility is that the other software may be handling things improprerly. I recall testing one product last year or the year before that is suspect in this area because it assumed that if the child is able to be claimed as a dependent, it means that the child is also not eligible for the refundable portion of the credit. This is close but not completely true.

The software I was testing disallowed the refundable portion for any taxpayer who indicated that the taxpayer was able to be claimed as a dependent.

For example, a full-time student under age 24 who is not providing more than 50% of their own support can be a Qualifying Child dependent on the parents' return.

However, a similar child who earns less than the personal exemption and is a part-time student could still be a Qualifying Relative dependent on the parents' return.

If the first individual (The full-time student Qualifying Child dependent) were to not be claimed by their parents and were to file to claim the American Opportunity Credit, this individual would not be able to claim his/her own personal exemption and could only get the nonrefundable portion.

If the second individual (The more than half-time, less than full-time student Qualifying Relative dependent) were to not be claimed by their parents and were to file to claim the American Opportunity Credit, this individual would also not be able to claim his/her own personal exemption but would be eligible to claim both the nonrefundable and refundable portions of the credit.

The software I was testing did not give the credit to anyone who indicated that they were able to be claimed as a dependent on another taxpayer's return.

Perhaps calling the software support number will explain what needs to be done.

[DONNA ASTON]

Thanks for all the comments and explainations. Dan I didn't assume the 9 credit hours is not full time according to the college he attends he IS NOT full time. dtlee you are correct this client is not a qualifing child and your explaination is what I also understand of this credit. dtlee I believe you are correct in saying the correct box on her tax program may not be filled out or she missed something as I pointed that out to her yesterday. Thanks BP it is good to know I am not the only "tax pro" that does that.

[DONNA ASTON]

Thanks for all the comments and explainations. Dan I didn't assume the 9 credit hours is not full time according to the college he attends he IS NOT full time. dtlee you are correct this client is not a qualifing child and your explaination is what I also understand of this credit. dtlee I believe you are correct in saying the correct box on her tax program may not be filled out or she missed something as I pointed that out to her yesterday. Thanks BP it is good to know I am not the only "tax pro" that does that.

[dan doshan]

The original poster indicated that the student was not a full time student based on these credits. While some board members assume that other members of the board are not worthy of being considered "tax pros" I am assuming that the original poster understands the rules and is asking why the two packages are giving different results for identical situations.

I believe that there is some box unchecked (or checked) somewhere in the other package or that the situations are not really that much alike.

I do not think any such thing. Just thought it worthy of pointing out. One could easily just assume that someone taking only 9 credits would not be a full time student, myself included.

[dtlee]

OK, I see your distinction. But just in terms of the AOC, does this mean there are two different enrollment definitions - one for the non-refundable portion and another for the refundable portion?

Because eligible students for AOC must be at least half time as defined by the school and as evidenced on the 1098-T, which says for that particular box, that "if at least half time . . . you meet one of the requirements for the AOC." (AOC workload requirement is deemed met.)

Do we need to look for an extra level of workload if refundable AOC under 24?

I have no idea (since I cannot make political comments on the forum) why this rule is so convoluted, but there are two sets of rules.

You (or your parents if you are claimed by them) are eligible to claim the American Oportunity Credit based on being enrolled at least half-time.

If a student is not able to be claimed by the student's parents (or if the parents simply decide not to claim the dependent even though they could have), then the student is definitely eligible for the nonrefundable portion of the credit.

The second part is the question about the refundable portion....which requires the student to be over a certain age or provide more than half of their support with earned income. If the parents simply chose not to claim the student, the student did not suppy more than half of their own support, so that eliminates the refundable portion automatically. If the student did not provide more than half of their support with earned income, the refundable portion is not allowed.

In this particular situation, the student is not a full-time which eliminates the student from being considered a Qualifying Child to begin with and is not a dependent. Not being a full-time student (and being over age 18) eliminates the susceptibility to the Kiddie Tax rules. Thus, the student is the only person who can claim the credit (since the parents cannot claim the student) and is able to claim the refundable portion (since the student is not covered by the Kiddie Tax rules).

[BP.]

The 1098-T is used as backup documentation for whether or not a student is or is not at least half-time, not whether or not the student is considered ful-time.

OK, I see your distinction. But just in terms of the AOC, does this mean there are two different enrollment definitions - one for the non-refundable portion and another for the refundable portion?

Because eligible students for AOC must be at least half time as defined by the school and as evidenced on the 1098-T, which says for that particular box, that "if at least half time . . . you meet one of the requirements for the AOC." (AOC workload requirement is deemed met.)

Do we need to look for an extra level of workload if refundable AOC under 24?

[BP.]

I am not the only one that beats myself up over the refundable portion of this credit.

I do too!

Just had one few days ago. Mom, Dad (no earnings) & 5 dtrs live together, with Mom's wages of $65,000; 20 y.o. college dtr one of the five (and the only dtr with income); she earned $20K. She claimed herself and the refundable AOC, as she provided over half her support.

[dtlee]

The definition of the term "full time" is one who was enrolled fulltime.

So, what is fulltime? Yes, as defined by the school.

And how does the school document that definition? By checking the box on Form 1098-T that says "At Least Half Time."

The rule for a dependent being a full-time student under age 24 predates both the updated Kiddie Tax Rules and the education credits. The 1098-T is used as backup documentation for whether or not a student is or is not at least half-time, not whether or not the student is considered ful-time. Occassionally, when a taxpayer is unclear, I have actually called a school and asked if the number of credits taken are considered full-time or not. This is needed to determine whether or not the parent can claim the child and that determines who can claim the credit.

You cannot assume that a student who is at least half time is by definition full time. The question is whether the school considers the student to be full-time or not. Each school defines it themselves.

I know of no school that defines full-time as being at least half-time.

[BP.]

A full-time student is a child who . . . was enrolled as a full-time student.

The definition of the term "full time" is one who was enrolled fulltime.

So, what is fulltime? Yes, as defined by the school.

And how does the school document that definition? By checking the box on Form 1098-T that says "At Least Half Time."

[dtlee]

A full time student is a student who is enrolled for the number of hours or courses the school considers to be full-time attendance. I have no idea what that may be. Probably varies among schools.
If the school in question considers 9 credit hours to be full time then ....
Also some things would depend on how many months student attended school.

The original poster indicated that the student was not a full time student based on these credits. While some board members assume that other members of the board are not worthy of being considered "tax pros" I am assuming that the original poster understands the rules and is asking why the two packages are giving different results for identical situations.

I believe that there is some box unchecked (or checked) somewhere in the other package or that the situations are not really that much alike.

[dan doshan]

A full time student is a student who is enrolled for the number of hours or courses the school considers to be full-time attendance. I have no idea what that may be. Probably varies among schools.
If the school in question considers 9 credit hours to be full time then ....
Also some things would depend on how many months student attended school.

[dtlee]

In defining a student's enrollment status for tax purposes, isn't "at least half time" the equivalent of "full time?"

Unfortunately, I don't have time to peruse the code for a citation this afternoon.

Here is the half-time definition for the credit from Publication 970 (2010 version since 2011 is not available):

Enrolled at least half-time. 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.

Here is the definition of a full-time student for purposes of the Kiddie Tax from Publication 17:

Full-time student. A full-time student is a child who during some part of each of any 5 calendar months of the year was enrolled as a full-time student at a school, or took a full-time on-farm training course given by a school or a state, county, or local government agency. A school includes a technical, trade, or mechanical school. It does not include an on-the-job training course, correspondence school, or school offering courses only through the Internet.