Can my college student claim the American Opportunity Education Credit if I make too much?

Thanks for explaining this! One question - if our daughter has very little income of her own, would she still benefit from the credit since a portion is refundable? And second, how much income would she need to have to maximize the credit?

Yes, your daughter could still benefit even with little income! The AOTC is partially refundable - up to $1,000 can be refunded even if she has zero tax liability. For maximizing the benefit, she doesn't need much income at all. The full $2,500 credit includes that $1,000 refundable portion, and the remaining $1,500 non-refundable portion would only require about $10,000-15,000 in taxable income to fully utilize. But even with no income, she'd still get that $1,000 refundable portion, which might be more beneficial than your dependent exemption depending on your tax bracket.

Does this tool actually connect to the IRS or is it just a calculator? I've used TurboTax in the past but it never clearly showed me the options side by side like that.

I'm intrigued but skeptical. How exactly does it determine which scenario is better? Does it factor in state taxes too or just federal?

It doesn't connect to the IRS - it's an AI-powered document analyzer that processes your tax documents and shows you different scenarios. It's more comprehensive than basic calculators since it can actually "read" your forms. It focuses mainly on federal taxes but does flag state tax considerations. It analyzes your entire tax situation including income levels, education expenses, and other deductions to determine whether you or your child would benefit more from the education credits. The visualization showing both scenarios side-by-side was what really helped me understand the trade-offs.

How does this even work? I thought it was impossible to get through to the IRS without waiting hours. Are they just constantly auto-dialing for you?

Yeah right. Nobody gets through to the IRS. This sounds like a scam that charges you money and then puts you in the same queue everyone else is in. Did you actually talk to a real person or just a recording?

They use an automated system that navigates the IRS phone tree and waits in the queue for you, then calls you when an agent is about to answer. You don't have to keep redialing or wait on hold for hours. Yes, I actually spoke with a real IRS agent who walked me through the education credit rules based on our specific situation. The agent even referenced the specific IRS publication sections that covered my questions. It wasn't a recording - we had a 25-minute conversation where she answered all my questions about dependent status and education credits.

That's a really good point I hadn't considered fully. My daughter did have an internship last summer and works part-time during school, probably earning around $14,000 for the year. Would that be enough to utilize most of the credit?

With $14,000 in earnings, your daughter should have enough tax liability to utilize a good portion of the non-refundable part of the AOTC. After the standard deduction (around $13,850 for 2023), she'll have a small taxable income. Even with minimal tax liability, she'll still get the $1,000 refundable portion, plus whatever portion of the $1,500 non-refundable part her tax liability allows. So while she might not get the full $2,500, she'll likely get significantly more than $1,000. Definitely worth calculating both scenarios to see which benefits your family more overall.

Yes, scholarships definitely impact the AOTC calculation! Tax-free scholarships that are used for qualified education expenses (tuition and required fees) reduce the amount of expenses eligible for the credit. However, if the scholarship is used for room and board (by including it as taxable income), then it doesn't reduce qualified expenses.