Should your child claim the credit?

The AOTC is a partially-refundable tax credit to help make college more affordable. A refundable tax credit allows a taxpayer to receive a refund if the amount of the taxpayer’s tax credit exceeds the taxpayer’s income tax liability. The AOTC is refundable up to a maximum of 40 percent ($1,000) of the maximum tax credit of $2,500.

If you claim your child as a dependent, you can claim an education credit for his or her qualified education expenses. You can even include expenses paid by your child or someone else. You can choose not to claim your child as a dependent so he or she can claim the education credit. However, if an individual is eligible to be claimed as a dependent, that individual’s personal exemption deduction is zero.

Please note: If you don’t claim your child as a dependent so he or she can claim the AOTC, your child does not qualify for the refundable portion of the credit if all of the following apply. Your child was:
  • Under age 18 at the end of 2010; or
  • Age 18 at the end of 2010 and his or her earned income (i.e., wages, salaries, tips, etc.) was less than one-half of his or her support; or
  • A full-time student over age 18 and under age 24 at the end of 2010 and his or her earned income was less than one-half of his or her support.
  • At least one of the child’s parents was alive at the end of 2010.
  • Your child is not filing a joint return for 2010.

The AOTC can also be claimed in the same year a beneficiary takes a tax-free distribution from a 529 plan, as long as the same expenses are not used for both benefits.
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Topic: College