Final answer:
The maximum refundable portion of the American Opportunity Tax Credit after reducing tax liability to zero is $1,000. This credit aims to make higher education more accessible for low- to middle-income individuals and is partially refundable to provide financial aid even if no tax is owed.
Step-by-step explanation:
If a taxpayer claiming the American Opportunity Tax Credit has their tax liability reduced to zero, the maximum amount they may receive as a refundable credit is 40% of the remaining amount of the credit, with a maximum of $1,000 being refundable.
An explanation of this involves how the credit works. The American Opportunity Tax Credit is aimed at offsetting the costs of higher education. For qualified education expenses, it offers a credit of up to $2,500 per student per year. If the credit brings the taxpayer's liability down to zero, up to $1,000 of the remaining credit can be refunded to the taxpayer. This aspect ensures that even if a taxpayer doesn't owe any tax, they can still benefit from the credit, up to a certain amount. It's designed to make college more affordable and to offer a tax benefit to low- and middle-income families and individuals. When the tax liability has been reduced to zero, the refundable portion of this credit still provides financial assistance for education expenses.