! must provide the educational institution’s EIN on

CAUTION your Form 8863. You should be able to obtain this

information from Form 1098-T or the educational institu- tion.

Effect of the Amount of Your Income on the Amount of Your Credit

The amount of your American opportunity credit is phased out (gradually reduced) if your MAGI is between $80,000 and $90,000 ($160,000 and $180,000 if you file a joint return). You can’t claim an American opportunity credit if your MAGI is $90,000 or more ($180,000 or more if you file a joint return).

Modified adjusted gross income (MAGI). For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return.

MAGI when using Form 1040 or 1040-SR. If you file Form 1040 or 1040-SR, your MAGI is the AGI on line 11a of that form, modified by adding back any:

1. Foreign earned income exclusion,

2. Foreign housing exclusion,

3. Foreign housing deduction,

4. Exclusion of income by bona fide residents of American Samoa, and

5. Exclusion of income by bona fide residents of Puerto Rico.

You can use Worksheet 2-1 to figure your MAGI.

Worksheet 2-1. MAGI for the American Opportunity Credit

1. Enter your adjusted gross income (Form 1040 or 1040-SR, line 11a) . . . . . . . . . 1.

2. Enter your foreign earned income exclusion and/or housing exclusion (Form 2555, line 45) . . . . . . . . . . . 2.

3. Enter your foreign housing deduction (Form 2555, line 50) . . . . 3.

4. Enter the amount of income from Puerto Rico you are excluding . . . . 4.

5. Enter the amount of income from American Samoa you are excluding (Form 4563, line 15) . . . . . . . . . . . 5.

6. Add the amounts on lines 2, 3, 4, and 5 . . . . . . . . . . . . . . . . . . . . 6.

7. Add the amounts on lines 1 and 6. This is your modified adjusted gross income . Enter here and on Form 8863, line 3 . . . . . . . . . . . . . . . . . . 7.

Phaseout. If your MAGI is within the range of incomes where the credit must be reduced, you will figure your re

duced credit using lines 2–7 of Form 8863. The same method is shown in the following example.

Example. You are filing a joint return and your MAGI is $165,000. In 2025, you paid $5,000 of qualified education expenses.

You figure a tentative American opportunity credit of $2,500 (100% of the first $2,000 of qualified education expenses, plus 25% of the next $2,000 of qualified education expenses).

Because your MAGI is within the range of incomes where the credit must be reduced, you must multiply your tentative credit ($2,500) by a fraction. The numerator (top part) of the fraction is $180,000 (the upper limit for those filing a joint return) minus your MAGI. The denominator (bottom part) is $20,000, the range of incomes for the phaseout ($160,000 to $180,000). The result is the amount of your phased out (reduced) American opportunity credit ($1,875).

Refundable Part of Credit

Forty percent of the American opportunity credit is refundable for most taxpayers. However, if you were under age 24 at the end of 2025 and the conditions listed below apply to you, you can’t claim any part of the American opportunity credit as a refundable credit on your tax return. Instead, your allowed credit (figured on Form 8863, Part II) will be used to reduce your tax as a nonrefundable credit only.

You don’t qualify for a refund if items 1 (a, b, or c), 2, and 3 below apply to you.

1. You were:

a. Under age 18 at the end of 2025, or

b. Age 18 at the end of 2025 and your earned in come (defined below) was less than one-half of your support (defined below), or

c. Over age 18 and under age 24 at the end of 2025

and a full-time student (defined below) and your earned income (defined below) was less than one-half of your support (defined below).

2. At least one of your parents was alive at the end of

4. You are filing a return as single, head of household, qualifying surviving spouse, or married filing separately for 2025.

Earned income. Earned income includes wages, salaries, professional fees, and other payments received for personal services actually performed. Earned income includes the part of any scholarship or fellowship grant that represents payment for teaching, research, or other services performed by the student that are required as a condition for receiving the scholarship or fellowship grant.

$2,500 ×

$180,000-$165,000

= $1,875 $20,000

20 Chapter 2 American Opportunity Credit Publication 970 (2025)

Earned income doesn’t include that part of the compensation for personal services rendered to a corporation that represents a distribution of earnings or profits rather than a reasonable allowance as compensation for the personal services actually rendered.

If you are a sole proprietor or a partner in a trade or business in which both personal services and capital are material income-producing factors, earned income also includes a reasonable allowance for compensation for personal services, but not more than 30% of your share of the net profits from that trade or business (after subtracting the deduction for one-half of self-employment tax). However, if capital isn’t an income-producing factor and your personal services produced the business income, the 30% limit doesn’t apply.

Support. Your support includes food, shelter, clothing, medical and dental care, education, and the like. Generally, the amount of the item of support will be the amount of expenses incurred by the one furnishing such item. If the item of support is in the form of property or lodging, measure the amount of such item of support by its fair market value. However, a scholarship received by you isn’t considered support if you are a full-time student. See Pub. 501 for details.

Full-time student. You are a full-time student for 2025 if during any part of any 5 calendar months during the year you were enrolled as a full-time student at an eligible educational institution (defined earlier), or took a full-time, on-farm training course given by such an institution or by a state, county, or local government agency.