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June 1, 2019
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Problems taking the "American opportunity credit " Turbo tax added 1926.00 to my federal refund which is not possible because the maximum refund is 1000.00.

  • June 1, 2019
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Best answer by AnthonyC

The maximum annual credit for the American Opportunity Credit is $2,500 per eligible student.  As you have stated, only $1,000 of the credit is refundable.  However, that doesn't mean it can't have a greater impact on your refund than $1,000.  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.  So, this means that if the amount of tax you have to pay goes to zero, then you can get a larger refund from other sources, such as the withholding on your W2.

Example:  You have a W2 job that has $1,500 of federal tax withholding in box 2 and your total tax liability on your income is $1,500.  Before the AOC, you would have zero refund because your withholding would match your tax liability.  However, after applying to AOC, $1,500 of the credit can be applied directly to your tax liability, bringing your tax due to zero and now giving you a refund of $1,500.  Now, if the AOC did not have a refundable portion of its tax credit, this would be the end of the calculation and you would lose all remaining credit.  However, since it does, you can take the remaining $1,000 in credit and have it refunded to you, which now brings your total refund to $2,500.  Of course, all of the above assumes you have enough education expenses for the full credit.


https://www.irs.gov/individuals/aotc

1 reply

AnthonyCAnswer
Employee
June 1, 2019

The maximum annual credit for the American Opportunity Credit is $2,500 per eligible student.  As you have stated, only $1,000 of the credit is refundable.  However, that doesn't mean it can't have a greater impact on your refund than $1,000.  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.  So, this means that if the amount of tax you have to pay goes to zero, then you can get a larger refund from other sources, such as the withholding on your W2.

Example:  You have a W2 job that has $1,500 of federal tax withholding in box 2 and your total tax liability on your income is $1,500.  Before the AOC, you would have zero refund because your withholding would match your tax liability.  However, after applying to AOC, $1,500 of the credit can be applied directly to your tax liability, bringing your tax due to zero and now giving you a refund of $1,500.  Now, if the AOC did not have a refundable portion of its tax credit, this would be the end of the calculation and you would lose all remaining credit.  However, since it does, you can take the remaining $1,000 in credit and have it refunded to you, which now brings your total refund to $2,500.  Of course, all of the above assumes you have enough education expenses for the full credit.


https://www.irs.gov/individuals/aotc