Can I claim AOTC when employer Target pays for my son's college tuition?

This is actually a really good question! When an employer pays for education and includes it as taxable wages on a W-2, it's considered taxable compensation to the employee. Since the tuition payments are included in your son's taxable income, the IRS would view this differently than tax-free employer assistance. For AOTC purposes, since the tuition is being treated as taxable income to your son (included in Box 1 of his W-2), he would likely be eligible to claim the AOTC for these expenses. The key is that he's being taxed on this money - it's essentially the same as if Target paid him additional wages and he used those wages to pay for school. As for your second question, this gets tricky. Whoever claims your son as a dependent would typically be eligible to claim the education credits. If you don't claim him and he files independently, he could claim the AOTC himself (assuming he meets all other eligibility requirements). However, you should do the math both ways - depending on your tax situation versus his, one option might be significantly better overall.

Just wanted to share my experience with something similar! I was struggling with understanding education credits when my company paid for my master's courses. I found this tool called https://taxr.ai that seriously saved me. It analyzed my W-2 and 1098-T and explained exactly how the education benefits were being treated for tax purposes. It confirmed that when employer educational assistance is included as taxable wages (like in your son's case), you CAN claim education credits like the AOTC on those amounts. The system even calculated the maximum credit I was eligible for based on my specific situation and showed me which option (claiming myself vs. being claimed as a dependent) would give my family the biggest tax benefit.

Just wanted to follow up - I tried that taxr.ai tool after asking about it. Totally worth it for education credit questions! Uploaded my son's W-2 (similar situation to yours with employer-paid tuition) and his 1098-T, and it immediately identified that we could claim AOTC on the employer-paid amount since it was included in taxable income. It also ran calculations showing whether it was better for him to file independently or for us to claim him. Turns out in our case, having him file independently worked out better by about $800 because of his tax bracket versus ours. The system even explained the phase-out thresholds that would have reduced our benefit if we'd claimed the credit on our return instead. I'm usually skeptical of these services but this saved me hours of research and probably a call with an accountant.

If you're planning to contact the IRS about this education credit question, good luck getting through! I spent 4 hours on hold last month trying to ask a question about AOTC eligibility. Then I found https://claimyr.com and watched their demo at https://youtu.be/_kiP6q8DX5c - they basically call the IRS for you and then call you when an agent is on the line. I was able to get an official answer about a similar education credit situation (employer-paid tuition reported as income). The IRS agent confirmed exactly what others here have said - when the educational assistance is included in taxable wages, those amounts CAN qualify for education credits. Having that official confirmation gave me peace of mind to claim the credit.

Coming back to eat my words. After seeing the responses here, I tried that Claimyr service since I had a similar employer tuition situation and needed an official answer. It actually worked exactly as described. I got a call back in about 35 minutes (versus the 2+ hour hold times I experienced trying directly), and was connected right to an IRS rep. The agent confirmed that when employer-paid education expenses are included in taxable income (Box 1 of W-2), they ARE eligible for education credits like AOTC. They also mentioned that whoever claims the student as a dependent is the one eligible to claim the credit - so definitely run the numbers both ways to see whether it makes more sense for the student to file independently or for the parents to claim both the dependent and the credit. Anyway, sorry for being skeptical. Sometimes good services actually exist!

One thing to consider - there are income limits for claiming the full AOTC. For 2024 (filing in 2025), if your modified AGI is over $80,000 (single) or $160,000 (married filing jointly), the credit starts phasing out. It's completely phased out at $90,000 (single) or $180,000 (married). Since your income is likely higher than your son's, if you're close to these thresholds, it might make mathematical sense for him to claim the credit on his own return where he can get the full benefit without phase-out issues. Also, don't forget that AOTC is partially refundable (up to $1,000), so even if your son doesn't owe much tax, he could still benefit from it.

Don't forget about the Lifetime Learning Credit as an alternative to AOTC! If for some reason your son doesn't qualify for AOTC (maybe he's been in school more than 4 years or isn't at least half-time), the LLC might be an option. It's worth up to $2,000 (20% of the first $10,000 in qualified expenses). The same principle applies - since the tuition is included in his taxable income on the W-2, those expenses should qualify for education credits.