What is IRS Form 8863?

IRS Form 8863

If you are feeling overwhelmed as soon as the end of the financial year is approaching then you are not alone. Most of the taxpayers go through this phase in which they have confusion between so many tax forms. And it is very important for a taxpayer to have a clear idea which form he/she has to fill out. Some forms are easy to fill out whereas some of them are very difficult to understand. IRS Form 8863 is one such form. By now you must have started wondering What is IRS Form 8863 and how to fill out IRS Form 8863. No worries! You have come to the right place. Here, you will get the answers to all such questions. 

What is IRS Form 8863?

A taxpayer will have to fill out this form when he/she is in the process of claiming one of the IRS educational tax credits. In such a scenario it is a must to fill out this form and then attach it with the tax return. These educational tax credits can provide a dollar-for-dollar reduction in your owed tax amount for the costs you incur to attend school. There is a certain criteria that you need to fall in to be eligible for filling out this form. 

This tax form can be your solution when you are trying hard to cover the costs of tuition, books, and other important school supplies. In such a scenario, you might be eligible for some relief from the federal taxes. The US federal government takes an initiative to help such students. In this they counterbalance the costs of higher education with the help of IRS educational tax credits. And an individual can easily claim these credits with the help of the IRS Form 8863

You May Read Also: IRS Form 5329?

What are different credits?

There are two different educational tax credits that an individual can claim with the help of this tax form. 

The American Opportunity Tax Credit (AOTC):

This is a federal tax credit that can cover the costs of qualified education expenses. The individual pays these expenses during the first four years of their post secondary education. You can get a part of this credit as a refund. If by filling out this tax form you can take your tax bill as low as zero then you are eligible to receive a tax refund up to $1,000.

The IRS Form 8863 determines the amount of this tax credit. It is calculated at 100 percent of the first $2,000 of qualified expenses. These expenses are what has been paid for an eligible student. And 25 percent of the next $2,000 of qualified expenses. 

If you want to receive the credit amount at its maximum after filling out the IRS Form 8863 then your modified adjusted gross income has to be $80,000 or less. When you are married and filing jointly with your partner then it has to be $160,000 or less. And if it is more than $90,000 then you are not eligible to file this form. If you are filing jointly then this limit is $180,000. When your modified adjusted gross income is between $80,000 and $90,000 then you can get a reduced amount. And for joint filers this limit is between $160,000 to $180,000.

Eligibility for AOTC:

In order to claim this education credit an individual must meet below conditions.

  • When the individual is pursuing a degree or other recognized education credential.
  • If the individual has enrolled at least half time for at least one academic period at the beginning of the tax year. The IRS decides this academic period. 
  • When the individual has finished the first four years of higher education when the tax year started. He/she should not have claimed the AOAmerican Opportunity Tax Credit for more than four tax years.
  • The individual should not have a felony drug conviction at the end of the year.

The Lifetime Learning Credit (LLC):

This educational tax credit is not similar to the American Opportunity credit as it is a non-refundable one. And it also does not have any limit on the time duration in which you can claim this credit. This tax credit can be claimed for all years of your higher education. This applies for your postsecondary education and also for other courses that help you to acquire or improve job skills. 

This simply means that this credit has very less restrictions as compared to the previous one. In order to claim this tax credit the individual does not necessarily have to pursue a degree or other recognized education credential.

With the help of this credit it is very easy to offset the tuition and other fees required like enrollment fees or attendance fees. It also covers the costs of payments made to the institution for course-related books, supplies, and equipment etc. You can claim it only once per return. Unlike the other tax return you cannot claim this credit per student. With the help of the IRS Form 8863, you can claim up to a $2,000 credit per return.

In order to claim the full amount of this credit, an individual must have his/her modified adjusted gross income equal to $68,000 or less. If you are married and filing jointly with your partner then it has to be $136,000 or less. When your modified adjusted gross income does not fall in the range then you are not eligible for filling out the IRS Form 8863. And if your modified adjusted gross income is between $58,000 and $68,000 then you can get a reduced amount. And for joint filers this limit is between $116,000 to $136,000. 

Eligibility for LLC:

In order to claim this education credit an individual must meet below conditions.

  • The individual needs to be enrolled in an eligible educational institution. Or he must be taking courses for the same. 
  • He/she needs to be taking higher education courses to get a degree, recognized education credential, or job skills.
  • The student must be enrolled for at least one academic period beginning in the tax year.

You May Read Also: IRS Form 8885?

How to Calculate the Modified Adjusted Gross Income?

Your modified adjusted gross income has to fall within the certain income range in order to become eligible for filling out the IRS Form 8863. This is an important step in the process of filling out the IRS Form 8863. Now you must be wondering how to calculate this. Here are the steps to calculate your MAGI.

  • First of all you have to find your adjusted gross income. For this you can take help from the IRS Form 1040
  • Now add back the deductions for IRA contributions, student loan interest, or tuition, if there are any.
  • You also have to add half of your self-employment tax.
  • Now add your passive income or loss to this. 
  • After this you have to add excluded foreign income if any. 
  • You also have to add rental losses if there are any. 
  • Now add the interest from EE savings bonds.
  • After this you have to add any employer-paid adoption expenses.
  • At last, you will have to add the losses from a publicly traded partnership if there are any. 
Wrapping Up!

By now you must have clearly understood what is the IRS Form 8863 and what is the purpose for it. In the above blog we have tried to explain this tax form with great detail. Some people handle their taxation process on their own while some people find it better to hire a paid tax professional for it. This way they can take the burden off their shoulders and there are less chances of any mistakes while filling out the tax forms.

If you also want to know how to start this then you can get in touch with us. All you have to do is, Contact us on Accounts Confidant +1-888-660-0575 We are available 24×7.

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