AOC Refundable Ed Credit

[S T]

I have not encountered this before

and I believe what I have a question on is "no earned Income"

Client would file a return showing no earned income -- Age 29, but has Education credit - paid for by another party not claiming as a dependent - 4 year AOC or Hope not claimed prior

Entering that way on the return, Client would receive $ 1,000 refundable AOC

Is that possible?

Sandy

[mactoolsix]

Expenses paid by others. Someone other than you, your spouse, or your dependent (such as a relative or former spouse) may make a payment directly to an eligible educational institution to pay for an eligible student's qualified education expenses. In this case, the student is treated as receiving the payment from the other person and, in turn, paying the institution.

However, I'm curious - How did the student support himself? If someone else provided more than 1/2 his own support, he is possibly a dependent of someone else? If listed as a dependent on another persons return, he can not claim the credit. Possibly he had lots of unearned income, or lived off savings?

Since he is over 24, the exclusions would not apply.

If they meet all the other qualifications - 1/2 time student for at least one academic period, undergrad in a degree program, etc. - they would receive the refundable credit.

Oh yea, I forgot - there is no requirement for having "earned income" to receive the refundable part.

Mike

[S T]

Thanks Mike - you outlined perfectly -

I just found it odd that with no earned income, it would be possible to receive the AOC refundable credit.

Learn something new everyday on these College AOC situations.

Sandy

[mactoolsix]

About refundable credits under age 24

Refundable Part of Credit

Forty percent of the American opportunity credit is refundable for most taxpayers. However, if you were under age 24 at the end of 2012 and the conditions listed below apply to you, you cannot claim any part of the American opportunity credit as a refundable credit on your tax return. Instead, your allowed credit (figured on Form 8863, Part II) will be used to reduce your tax as a nonrefundable credit only.

You do not qualify for a refund if items 1 (a, b, or c), 2, and 3 below apply to you.

1) You were:

a) Under age 18 at the end of 2012, or

b) Age 18 at the end of 2012 and your earned income (defined below) was less than one-half of your support (defined below), or

c) Over age 18 and under age 24 at the end of 2012 and a full-time student (defined below) and your earned income (defined below) was less than one-half of your support (defined below).

2) At least one of your parents was alive at the end of 2012.

3) You are filing a return as single, head of household, qualifying widow(er), or married filing separately for 2012.

These are a real mind game, as all three must apply to NOT qualify for a refund.

In English:
If you are under 24 both of your parents must be dead to qualify.

Also if under 24 must be filing a joint return, and 1/2 your support must be from earned income to qualify.

Also you don't qualify if you are under 18.

Mike

[S T]

Thanks again for explaining - I do have a terrible time with the AOC and qualifying under the items you outlined - as they just don't seem to be in "plain English" for one to comprehend

As you say "a real mind game"

Sandy

[DexEA]

Refundable Part of Credit

Forty percent of the American opportunity credit is refundable for most taxpayers. However, if you were under age 24 at the end of 2012 and the conditions listed below apply to you, you cannot claim any part of the American opportunity credit as a refundable credit on your tax return. Instead, your allowed credit (figured on Form 8863, Part II) will be used to reduce your tax as a nonrefundable credit only.

You do not qualify for a refund if items 1 (a, b, or c), 2, and 3 below apply to you.

1) You were:

a) Under age 18 at the end of 2012, or

b) Age 18 at the end of 2012 and your earned income (defined below) was less than one-half of your support (defined below), or

c) Over age 18 and under age 24 at the end of 2012 and a full-time student (defined below) and your earned income (defined below) was less than one-half of your support (defined below).

2) At least one of your parents was alive at the end of 2012.

3) You are filing a return as single, head of household, qualifying widow(er), or married filing separately for 2012.

These are a real mind game, as all three must apply to NOT qualify for a refund.

In English:
If you are under 24 both of your parents must be dead to qualify.

Also if under 24 must be filing a joint return, and 1/2 your support must be from earned income to qualify.

Also you don't qualify if you are under 18.

Mike

“If you are under 24 both of your parents must be dead to qualify.”

But if you are under 24 and both (or at least one) of your parents are alive you could still qualify IF your earned income is not less than ½ your support.

I hope that is correct or I may be in a bit of trouble!

[Edward]

I've always found the AOC Refundable Credit confusing, until I downloaded the instructions for Form 8863 which simplify and expedite the completion of data needed for line 7 of the form 8863:

YOU CAN ANSWER THE FOLLOWING QUESTIONS TO DETERMINE WHETHER YOU QUALIFY FOR THE REFUNDABLE AOC:

1. Were you under 24 at the end of 2012? If NO, stop here you DO QUALIFY to claim part of the allowable AOC as a refundable credit. IF YES, go to question 2.

2. Were you over 18 at the end of 2012? If YES, go to question 3. If NO, go to question 4.

3. Were you a full-time student (defined later) for 2012? If NO, stop here, you do qualify to claim part of your allowable AOC as a refundable credit. If YES, go to question 5.

4. Were you 18 at the end of 2012? If YES, go to question 5. If NO, go to question 6.

5. Was your earned income (defined later) less than one-half of your support (defined later) for 2012. If NO, stop here, you do qualify to claim part of your allowable AOC as a refundable credit. If YES, go to question 6.

6 Were either of your parents alive at the end of 2012? If NO, stop here. You do qualify to claim part of your allowable AOC as a refundable credit. If YES, go to question 7.

7, Are you filing a joint return for 2012? If NO, you do NOT qualify to claim part of your allowable AOC credit as a refundable credit. If YES, you do qualify to claim part of your allowable AOC as a refundable credit.

Note: See page 5 of the instructions for definitions of EARNED INCOME, SUPPORT AND FULL-TIME STUDENT. Does this help anyone?

[Burke]

I too, am confused by the AOC. Here is my situation: Client, age 18, both parents ARE deceased, receives approx $18K in scholarships & grants, eligible tuition and fees are $9K, resulting in taxable income carried to Line 7. Had small job in the summer, certainly not enough to pay 1/2 of her support. But with this addl income on Line 7, maybe? Is she entitled to anything remotely related to AOC? Parents killed in accident in 2011, she has life insurance proceeds, plus inheritance from settlement of estate pending. College expenses completely paid for through scholarships and grants. No one else is claiming her, nor would they be eligible to. She was living in deceased parent's house before she went to college in fall of 2012. None of tuition costs billed on 1098-T are for 2013 semester. She owes taxes due to scholarship and grant income.

[David1980]

College expenses completely paid for through scholarships and grants.

I don't think that one can claim an education credit.

[DexEA]

5. Was your earned income (defined later) less than one-half of your support (defined later) for 2012. If NO, stop here, you do qualify to claim part of your allowable AOC as a refundable credit. If YES, go to question 6.

Thanks, (shewww...wipe of the forehead), I can answer No to question 5 so I need not go to question 6 and DO qualify. Thanks!

I too, am confused by the AOC. Here is my situation: Client, age 18, both parents ARE deceased, receives approx $18K in scholarships & grants, eligible tuition and fees are $9K, resulting in taxable income carried to Line 7. Had small job in the summer, certainly not enough to pay 1/2 of her support. But with this addl income on Line 7, maybe? Is she entitled to anything remotely related to AOC? Parents killed in accident in 2011, she has life insurance proceeds, plus inheritance from settlement of estates. College expenses completely paid for through scholarships and grants. No one else is claiming her, nor would they be eligible to. She was living in deceased parent's house before she went to college in fall of 2012. None of tuition costs billed are for 2013 semester or on 1098-T. She owes taxes due to scholarship and grant income.

Burke, I don't believe you have any qualified expenses if it was 100% paid by scholarships and grants. Are there any other expenses such as books and/or school supplies that could help offset the amount of taxable income?

[Burke]

Burke, I don't believe you have any qualified expenses if it was 100% paid by scholarships and grants. Are there any other expenses such as books and/or school supplies that could help offset the amount of taxable income?

That's the way I'm reading it. Unfortunately, she does not have any receipts for books & materials, but it wouldn't amt to $9K for one semester anyway.

[dtlee]

I created this chart last year based on discussions here. If it helps, please feel free to use it. These are the Kiddie Tax Rules adapted for the Refundable portion of the American Opportunity Credit:

http://nytaxexperts.org/shared/RefundableAOCFlowchart.pdf

Please remember that if someone does claim a dependent, they are neither eligible for the nonrefundable nor the refundable portion of the credit. This chart assumes that the taxpayer is eligible for at least the nonrefundable portion credit by virtue of not being claimed by anyone as a dependent and determines eligibility for the refundable portion.

[BHoffman]

To clarify:

We have a 29 year old full time student.

She lives with her boyfriend and he provides 100% of her support while she attends college.

She has no earned income.

Boyfriend does not claim her as a dependent.

She pays for her education with a student loan.

She files a 1040A as Single.

She can receive the refundable portion of the AOC.

Right?

[ddoshan]

I'm winging it a little here but ... My hunch is she would not be eligible for any refundable portion. Probably yes to the non refundable portion.

[mactoolsix]

To clarify:

We have a 29 year old full time student.

She lives with her boyfriend and he provides 100% of her support while she attends college.

She has no earned income.

Boyfriend does not claim her as a dependent.

She pays for her education with a student loan.

She files a 1040A as Single.

She can receive the refundable portion of the AOC.

Right?

Per the instructions for form 8863 posted above:
1. Were you under 24 at the end of 2012? If NO, stop here you DO QUALIFY to claim part of the allowable AOC as a refundable credit.

Yes she would be able to receive the refundable AOC.

Wondering if they as a couple would be better off if her boyfriend claimed her as a dependent - he could claim the AOC and the exemption?
Mike