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To claim the American opportunity credit, you must provide the educational institution's EIN on 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 re- turn). 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 fig- ured 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 11 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 Ameri- can Samoa, and 5. Exclusion of income by bona fide residents of Puerto Rico. You can use Worksheet 2-1 to figure your MAGI. MAGI for the American Opportunity Credit Worksheet 2-1. 1. Enter your adjusted gross income (Form 1040 or 1040-SR, line 11) . . . . . . . . . . 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- CAUTION ! duced credit using lines 2–7 of Form 8863, Part I. The same method is shown in the following example. Example. You are filing a joint return and your MAGI is $165,000. In 2021, 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 ex- penses, plus 25% of the next $2,000 of qualified educa- tion 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 opportu- nity credit ($1,875). $2,500 × $180,000-$165,000 = $1,875 $20,000 Refundable Part of Credit Forty percent of the American opportunity credit is refund- able for most taxpayers. However, if you were under age 24 at the end of 2021 and the conditions listed below ap- ply to you, you can't claim any part of the American op- portunity 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 2021, or b. Age 18 at the end of 2021 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 2021 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 2021. 3. You are filing a return as single, head of household, qualifying widow(er), or married filing separately for 2021. Earned income. Earned income includes wages, salar- ies, professional fees, and other payments received for personal services actually performed. Earned income in- cludes the part of any scholarship or fellowship grant that represents payment for teaching, research, or other serv- ices performed by the student that are required as a Chapter 2 American Opportunity Credit Page 21