Ok, so I need some clarification on the AOTC. I am helping my girlfriend out and I'm way above my head and it doesn't seem right.
Here's the context:
In 2022, my girlfriend filed taxes as normal and received a refund, let's say $500 (I will confirm later today).
In Spring 2024, she realized that she did not add the 1098 from her university. Using TurboTax, she amended her return by adding the 1098T from 2022. This was back a few months ago.
Recently, she received a check in the mail from Treasury for $2,500.
Does this seem right? She was in fact eligible for the full $2,500 credit based on TurboTax, her 1098-T, and amount spent I thought that only $1000 was actually refundable based on this:
https://www.irs.gov/credits-deductions/individuals/aotc :
"The American opportunity tax credit (AOTC) is a credit for qualified education expenses paid for an eligible student for the first four years of higher education. You can get a maximum annual credit of $2,500 per eligible student. 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.
The amount of the credit is 100 percent of the first $2,000 of qualified education expenses you paid for each eligible student and 25 percent of the next $2,000 of qualified education expenses you paid for that student."
Why did the IRS send a check for $2,500?
Question about amending a return to claim AOTC
byu/LuckyTax7440 intax
Posted by LuckyTax7440
3 Comments
$2500 is the maximum credit.
She, most likely, had enough of a tax liability to absorb the $1500 non-refundable portion of the credit as well.
The amount of money she was refunded originally is not relevant.
I think perhaps you’re imagining that she must have had no tax liability because she already got a tax refund, but that’s just not correct. Someone who owes $20,000 of tax but had $20,500 withheld from their paychecks will get a $500 tax refund, but they clearly still paid quite a lot of tax.
The number to double check isn’t the amount of the refund, but the amount of tax on Line 16 of the original 1040. If that’s bigger than $1,500, that’s now been refunded too, along with the $1,000 refundable portion of the credit.
Your girlfriend probably originally owed, and paid through withholdings, at least $1500 in taxes. When she amended, the AOTC reduced what was owed, so she got a refund of those withholdings..
So, yes, you are correct that only $1000 of the AOTC is refundable, and the IRS was likely also correct to refund her $2500.
Does this help clarify?