Question

1.In 2019, Elaine paid $3,000 of tuition and $700 for books for her dependent son to attend State University this past fall as a freshman. Elaine files a joint return with her husband. Elaine’s AGI is $168,000.What is the maximum American opportunity credit Elaine can claim for the tuition payment and books?

2.In 2019, Amanda and Jaxon Stuart have a daughter who is one year old. The Stuarts are full-time students and they are both 23 years old. Their AGI is $25,000, consisting of $22,000 of wages and $3,000 of lottery winnings (unearned income). What is their earned income credit if they file jointly?

Answer 1

1.

INCOME LIMIT FOR AMERICAN OPPORTUNITY TAX CREDIT (AOTC)

To claim the full credit, AGI must be $80,000 or less for single and $160,000 or less for married filing jointly.

Phased out of the credit if your AGI is over $80,000 but less than $90,000 for single and over $160,000 but less than $180,000 for married filing jointly.

You cannot claim the credit if your AGI is over $90,000 for single and $180,000 for joint filers.

Here AGI is $168,000

As Elaine is filing jointly and AGI is between $160,000 and $180,000, hence AOTC will phase out

CALCULATION OF AOTC

Tuition fees=3000

books=700

Total qualifying expense(3000+700)=3,700

AOTC= 100% OF 2,000+25% OF (3,700-2,000)

=2,000+425

=2,425

Minimum level of phaseout range=$160,000

Maximum level of phaseout range=$180,000

Phaseout range(180000-160000)=20,000

Phase out %=(AGI - MINIMUM LEVEL OF PHASEOUT RANGE) /PHASEOUT RANGE

=(168,000-160,000)/20,000

=8,000/20,000

=40%

Elaine must reduce the credit amount by 40%

=2,425-40%*2,425

=2,425-970

=$1,455

So. Elaine can claim $1,455 maximum AOTC

2.

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