Line 66 of Form 1040 is used to claim a refund via the American Opportunity Credit. As discussed previously, Line 49 provides an initial opportunity for taxpayers to claim this education credit using Form 8863. Line 66, conversely, is the place where taxpayers may secondarily enjoy the Credit’s tax refund component (as opposed to just the Line 49 credit). To do so, taxpayers should transfer the computed value from Line 8 of Form 8863 to Line 66 of Form 1040.
The Line 66 refund is limited to 40% of the American Opportunity Credit amount. This means that up to $1,000 of the potential $2,500 credit can be refunded to taxpayers via Line 66. This is true even if taxpayers have zero tax liability (on Line 61 of Form 1040)!
To illustrate the functionality of the American Opportunity Credit, consider the following hypothetical. Imagine Peter qualifies for the Credit. Accordingly, he completes Form 8863 and determines that he is entitled to a $2,000 credit on Line 49 of his Form 1040. After working his way down his Form 1040, Peter determines his Line 61 tax liability is $600. After completing even more of his return, Peter realizes that, because 40% of his American Opportunity Credit is refundable, he is entitled to an $800 refund on Line 66. As a result, he applies his refund to fully remove the $600 of tax liability and is then permitted to collect the remaining $200.
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