Can a student earn American opportunity credit and also earn social security credits?

[curiousv]

What is the name of your state (only U.S. law)? WA

A student is 4 year degree student with WGU and he received Pell grant $ 2908 + WA state need grant - $2810 = Total $5718.

Tuition with WGU was only $3035 for 6 months (that includes books and other fees) term and remaining amount of $2683 was paid to him as refund.

To my understanding this refund money he got is considered taxable income because it was not for qualified expense like Tuition etc.

Once he declare this extra refund he got from his school he can get American opportunity credit correct?

Also if this is considered taxable income can he earn social security quarterly credits ? I am not sure if its considered earned income and I believe
you can only get social security credits if its earned income?

Because amount of refund he got is $2683 I guess he can earn two social security credits?

 

[LdiJ]

What is the name of your state (only U.S. law)? WA

A student is 4 year degree student with WGU and he received Pell grant $ 2908 + WA state need grant - $2810 = Total $5718.

Tuition with WGU was only $3035 for 6 months (that includes books and other fees) term and remaining amount of $2683 was paid to him as refund.

To my understanding this refund money he got is considered taxable income because it was not for qualified expense like Tuition etc.

Once he declare this extra refund he got from his school he can get American opportunity credit correct?

Also if this is considered taxable income can he earn social security quarterly credits ? I am not sure if its considered earned income and I believe
you can only get social security credits if its earned income?

Because amount of refund he got is $2683 I guess he can earn two social security credits?

Grants and scholarships are allowed to be used towards living expenses while in school, therefore the fact that he got a refund does not automatically mean that they are taxable income.

There is an option to elect to take scholarships and grants into income, which might make someone eligible for the American Opportunity Credit when they would otherwise not be eligible. See Publication 970 for more details.

Taking scholarships and grants into income would NOT make someone eligible for Social Security Credits.

Please note that your friend should pay particular attention to all of the rules regarding the American Opportunity Credit if he is under age 24.

 

[curiousv]

Grants and scholarships are allowed to be used towards living expenses while in school, therefore the fact that he got a refund does not automatically mean that they are taxable income.

There is an option to elect to take scholarships and grants into income, which might make someone eligible for the American Opportunity Credit when they would otherwise not be eligible. See Publication 970 for more details.

Taking scholarships and grants into income would NOT make someone eligible for Social Security Credits.

Please note that your friend should pay particular attention to all of the rules regarding the American Opportunity Credit if he is under age 24.

So I guess unless there is a taxable income ....student is not qualified for American Opp credit correct? and that is why one should elect to take unqualified income in this case refund as taxable income? or a student can elect to treat full amount of scholarship+grant as taxable income?

 

[LdiJ]

So I guess unless there is a taxable income ....student is not qualified for American Opp credit correct? and that is why one should elect to take unqualified income in this case refund as taxable income? or a student can elect to treat full amount of scholarship+grant as taxable income?

No, that is NOT correct. Right now however your friend is not eligible for the American Opportunity Credit because his scholarships and grants are greater than his tuition and fees. Please review IRS Publication 970 for more details.

 

[curiousv]

No, that is NOT correct. Right now however your friend is not eligible for the American Opportunity Credit because his scholarships and grants are greater than his tuition and fees. Please review IRS Publication 970 for more details.

Here is what I found on form 8863 instructions.

Coordination with Pell grants and other scholarships or
fellowship grants. You may be able to increase an education
credit and reduce your total tax or increase your tax refund if the
student (you, your spouse, or your dependent) chooses to
include all or part of certain scholarships or fellowship grants in
income. The scholarship or fellowship grant must be one that
may qualify as a tax-free scholarship under the rules discussed
in chapter 1 of Pub. 970. Also, the scholarship or fellowship
grant must be one that may (by its terms) be used for expenses
other than qualified education expenses (such as room and
board).
The fact that the educational institution applies the
scholarship or fellowship grant to qualified education expenses
(such as tuition and related fees) does not prevent the student
from choosing to apply certain scholarships or fellowship grants
to other expenses (such as room and board). By choosing to do
so, the student will include the part applied to other expenses
(such as room and board) in gross income and may be required
to file a tax return. However, this allows payments made in cash,
by check, by credit or debit card, or with borrowed funds such as
a student loan, to be applied to qualified education expenses.
These payments, unlike certain scholarships or fellowship
grants, will not reduce the qualified education expenses
available to figure an education credit. The result is generally a
larger education credit that reduces your total tax or increases
your tax refund.

 

[LdiJ]

Here is what I found on form 8863 instructions.

Coordination with Pell grants and other scholarships or
fellowship grants. You may be able to increase an education
credit and reduce your total tax or increase your tax refund if the
student (you, your spouse, or your dependent) chooses to
include all or part of certain scholarships or fellowship grants in
income. The scholarship or fellowship grant must be one that
may qualify as a tax-free scholarship under the rules discussed
in chapter 1 of Pub. 970. Also, the scholarship or fellowship
grant must be one that may (by its terms) be used for expenses
other than qualified education expenses (such as room and
board).
The fact that the educational institution applies the
scholarship or fellowship grant to qualified education expenses
(such as tuition and related fees) does not prevent the student
from choosing to apply certain scholarships or fellowship grants
to other expenses (such as room and board). By choosing to do
so, the student will include the part applied to other expenses
(such as room and board) in gross income and may be required
to file a tax return. However, this allows payments made in cash,
by check, by credit or debit card, or with borrowed funds such as
a student loan, to be applied to qualified education expenses.
These payments, unlike certain scholarships or fellowship
grants, will not reduce the qualified education expenses
available to figure an education credit. The result is generally a
larger education credit that reduces your total tax or increases
your tax refund.

Yes, that is in publication 970 however you also need to fully understand all of the other rules for the American Opportunity Credit. It probably would be a good idea for your friend to use a tax professional this year.