 Most of this information comes from Publication 970, Tax Benefits for Education Tax U 2022. You can find it at the IRS website, irs.gov, irs.gov. Looking at the income tax formula, we're down here in the credit area, noting the first half of the income tax formula is in essence an income statement, although a strange one, where the bottom line is taxable income similar to net income on a normal income statement. We then take taxable income to calculate the tax, not using one rate, but using the progressive tax system to get to the tax before credits and other taxes. Finally then, we're at the credit location on down below and other taxes like self-employment tax and whatnot. And then we deal with the payments, which could be estimated tax payments or estimated tax payments or withholdings to get to the tax refund or tax due. Also note the credits are similar to deductions and that we like them both, but if we can get a dollar credit or dollar deduction, we typically want the dollar credit because we usually get the full dollar worth of benefit as opposed to the dollar deduction, which just decreases the taxable income, the benefit being dependent upon our tax rate. Also remember that we have the non-refundable credits and the refundable credits, non-refundable credits do not take the tax liability below zero, where the refundable credits do transforming the tax code into not just taxes, but kind of a welfare or benefit program for that refundable portion. All right. Let's go to this. We got the figuring the credit. We're on the American Opportunity Credit. Let's talk about how to figure that thing. The amount of the American Opportunity Credit per eligible student is the sum of 100% of the first 2000 of qualified education expenses paid for the eligible student and 25% of the next 2000 of qualified education expenses you paid for the student. So when you're thinking about your expenses, we're compiling our expenses together. We talked about what qualifies for an education type of expense and we get 100% of the first 2000, great, and then 25% of the next 2000, 25% is going to be that $500 and so that the total credit then is going to be capped by that at $2,500 per student. So the maximum amount of American Opportunity Credit you can claim in 2022 is $2,500 multiplied by the number of eligible students. You can claim the full $2,500 for each eligible student for whom you paid at least 4,000 of adjusted qualified education expenses. So notice that 4,000 is a fairly low number to get that maximum amount of credit because college is quite expensive these days. So you've got the 4,000 that has been paid in order to maximize the credit out per student at the 2,500. So 4,000 of adjusted qualified education expenses, however, the credit may be reduced based on your MAGI, that's your Modified Adjusted Gross Income. So we have that income phase out as your income goes above the threshold, then the cap of 2,500 that you could get from the credit could be reduced for that phase out. The effect of the amounts of your income on the amount of your credit later. Let's look at an example, Jack and Kay are married and file a joint tax return. So Jack's no longer married to Jill, now he's married to Kay, Jack and Kay are married. So for 2022, they claim their dependent child on their tax return. Their MAGI Modified Adjusted Gross Income is $70,000. Their child is in the junior third year of studies at the local university. Jack and Kay paid qualified education expenses of $4,300 in 2022. So Jack and Kay, their child and the local university met all of the requirements for the American Opportunity Credit. All right, so how much do we get? Jack and Kay can claim a $2,500 American Opportunity Credit in 2022. This is 100% of the first 2,000 of qualified expenses plus 25% of the next 2,000. So notice they paid 4,300 that added 300, they didn't get any benefit from the credit above that mark because they take the 4,000, right? The 100% of the first 2,000 and then the 25% of the second 2,000. That's it. 1098T also note, they didn't hit the income threshold for the Modified AGI at $70,000 in order to start reducing the credit due to the AGI phaseouts. All right, Form 1098T, to help you figure your American Opportunity Credit, the student may receive Form 1098T from the educational institution. Generally, an eligible educational institution such as a college or university must send Form 1098T or acceptable substitute to each enrolled student by January 31st, 2023 and institution will report payments received box one for qualified education expenses. However, the amount on Form 1098T might be different from what you paid when figuring the credit use only the amounts you paid or are deemed to have paid in 2022 for qualified education expenses. So the financial institution has to pay out or give out this 1098T. The government, the IRS wants to see that because even if the amount on the 1098T is different than what you actually paid for whatever reason, meaning the amount of expenses you're using to calculate might differ than what's on the 1098T, although the 1098T should generally be a good number to use. But it might differ, but the IRS still wants the issuance of the 1098T because that at least indicates that you did indeed or someone did indeed attend college, which is now being verified by an outside third party of the college instead of the taxpayer. In addition, Form 1098T should give other information for that institution such as adjustments made for prior years, the amount of scholarship or grants, which could have an impact that we've seen in prior presentation, reimbursements, which could have an impact or refunds and whether the student was enrolled at least half time, which again could be one of the major requirements. All that information hopefully tightly packed into the Form 1098T to make it easy to figure. So the eligible educational institution may ask for a completed Form W9S. By the way, when I say so it's nice and tightly packed, so it's easily to figure. I don't mean just by you, it's not for your behalf, it's for the government's behalf so they can double check on their end. So if you report something different than what's on the 1098T, if you try to take the credit, even though you weren't a half time student, you were doing something less than half time, they might be able to see that on their end from like the 1098T or something more likely, you know, picking that up on their side. Okay, the eligible educational institution may ask for a completed Form W9S request for students or borrowers taxpayer identification number and certification or similar statement to obtain the student's name, address and TIN. You have to give them the information in order for them to have the information to populate on the 1098T. So effect of the amount of your income on the amount of your credits. All right, the American Opportunity Credit is phased out gradually if your MAGI, your income phase out, which is your adjusted gross income, which is modified. So basically your adjusted gross income with a slight modification is between 80,000 and 90,000, 160,000 and 180,000 if you are a joint return. So you probably aren't going to like need to understand the phase outs completely in your mind, like to be able to calculate them in your mind when you're discussing these things with a client or someone like that. It's enough. You're going to be able to say, hey, look, you get the American Opportunity Tax Credit. You get benefits up to like 4,000 per student because it takes the first hundred thousand of the 2,000 and then the 25% a second. So it could be up to 2,500 and that's 4,000 of qualified expenses. And then it starts to phase out as your income goes up and the threshold for it starting to phase out is 80,000 and you lose it completely fairly quickly at the 90,000 or if married, it starts to phase out at 160 and you lose it fairly quickly at 180.