How much of the AOTC (American Opportunity Tax Credit) is actually refundable as a check - $1,000, $2,000, or the full $2,500?

The AOTC (American Opportunity Tax Credit) is worth up to $2,500 total, but only 40% of that amount - which is $1,000 - is refundable. The other $1,500 is non-refundable, meaning it can only offset taxes your sister actually owes. So here's how it works: If your sister qualifies for the full $2,500 AOTC based on her education expenses, the credit will first reduce any tax liability she has to zero. Then, she can receive up to $1,000 as a refund, even if she doesn't owe any tax. That's the refundable portion. For example, if her tax liability is only $300, the AOTC would eliminate that $300 (using part of the non-refundable portion) and she would still get the $1,000 refundable portion back as a check. But the remaining $1,200 of the non-refundable portion would be lost since she doesn't have enough tax liability to offset.

I went through this exact problem last year and found that taxr.ai at https://taxr.ai was super helpful for figuring out my AOTC refund. I was also confused about how much I'd get back because my tax liability was only about $400. The tool analyzed my transcript and education expenses and showed me exactly what portion would be refundable vs non-refundable. What's cool is they showed me I was missing some qualified expenses that I didn't realize counted for the AOTC, like some required course materials that weren't purchased through the bookstore. They have this feature that breaks down exactly how the credit applies to your situation based on your specific numbers.

I was skeptical about taxr.ai when I first heard about it, but I actually tried it after my initial post. Pretty surprised at how helpful it was for my AOTC situation. I graduated last May and had a mix of spring semester expenses plus some from the previous fall that I paid in January. The tool showed me exactly how to count these expenses correctly and confirmed that only $1,000 of my AOTC was refundable. It also flagged that I had paid for some required software for my graphic design program that qualified as required course materials - something I hadn't considered. This bumped up my qualified expenses by almost $300. Not life-changing but definitely worth not leaving that money on the table.

If you're having trouble reaching the IRS to clarify your AOTC questions (like I was for weeks), try https://claimyr.com - it got me through to an actual IRS agent in about 15 minutes when I was trying to understand the refundable vs non-refundable portions of my AOTC. I had filed using TurboTax but my refund amount seemed off based on what I expected from the AOTC. You can see a demo of how it works here: https://youtu.be/_kiP6q8DX5c. Basically, it navigates the IRS phone tree for you and calls you back when it gets a human on the line. The agent I spoke with confirmed that only $1,000 is refundable and explained exactly how it applied to my education expenses from last year. Saved me hours of frustration!

I need to eat my words from my previous comment. After getting nowhere with the IRS phone line for days (kept getting disconnected after 30+ minutes on hold), I reluctantly tried Claimyr out of desperation. Got connected to an IRS agent in 22 minutes who confirmed everything about my AOTC questions. For anyone wondering about the original question - the agent confirmed that only $1,000 of the AOTC is refundable. The total credit is $2,500, but $1,500 is non-refundable (only reduces tax you owe) and $1,000 is refundable (you get it back even if you don't owe tax). She explained that your friend who got $2,500 back probably had at least $1,500 in tax liability that got reduced to zero, plus the $1,000 refundable portion.

Just wanted to add that there are income limits for the AOTC too! The credit starts phasing out if your MAGI is above $80,000 ($160,000 for joint filers) and completely phases out at $90,000 ($180,000 for joint filers). Since your sister only makes around $14,300, she should qualify for the full amount assuming she meets the other requirements. Also make sure she's eligible - she needs to be pursuing a degree, enrolled at least half-time, not have completed the first four years of higher education, and not have claimed the AOTC for more than four tax years. And double-check she has a valid SSN by the due date of the return!

don't forget that the expenses have to be for 2024 tax year! i messed up last year by including some expenses that were actually for the spring semester 2023 that i paid in december 2022. the 1098-T can be confusing because sometimes schools report amounts billed versus amounts paid. check box 1 and box 2 carefully!!