If you know of or have a student who could use financial help to pay for college expenses, you should talk to a tax adviser about the available tax credits that are designed to make higher education more affordable. Whether it is your own children leaving home for the first time or you have decided to return to school yourself, juggling schedules, course work and possibly a job can create stressful circumstances. Families can reduce the stress caused from the financial strain of higher education with tax credits such as the HOPE Scholarship Tax Credit and the American Opportunity Tax Credit.
Generally, you can claim the HOPE Credit if you pay qualified tuition and related expenses for the first two years of postsecondary education, for an eligible student, who can be you, your spouse, or a dependent for whom you claim an exemption on your tax return. To be an eligible student, generally, the student must not have had expenses that were used to figure a HOPE Credit in any two earlier tax years, or have completed the first two years of postsecondary education. The student must also be enrolled at least half-time in a program that leads to a degree, certificate, or other recognized educational credential for at least one academic period beginning in the tax year. To verify an institution's eligibility for the credit, visit the Federal Student Aid FAFSA website: www.fafsa.ed.gov/FOTWWebApp/FSLookupServlet.
The American Opportunity Tax Credit replaces and expands the HOPE Credit for 2009 and 2010 thanks to a measure in the American Recovery and Reinvestment Act of 2009 aimed at making college more affordable for low and moderate-income students. The maximum education credit is raised to $2,500 per year and is extended to cover four tax years. Specifically, this credit allows for a 100% credit per eligible student for the first $2,000 of qualified tuition expense, and a 25% credit for the next $2,000. The new legislation also includes course materials as part of the qualified expenses. This credit began January 1, 2009; however, if you made payments for a 2010 semester in 2009, those payments can qualify for 2009.
Most significantly, the American Opportunity Tax Credit is partially refundable. Previously, the HOPE Credit could reduce your regular tax bill to zero, but could not result in a refund, often denying the families most in need the help to afford college. The American Opportunity Tax Credit is 40% refundable. A taxpayer who has at least $4,000 in qualified expenses would qualify for the maximum credit of $2,500, but if the taxpayer has no tax liability to offset that credit against, he would qualify for a $1,000 refund from the government.
Like many other tax credits and deductions, the American Opportunity Tax Credit has some restrictions based on your income. For 2010, the credit is gradually reduced for single taxpayers when their Adjusted Gross Income reaches $80,000. For taxpayers who file a married filing joint return, the credit is gradually reduced when their AGI reaches $160,000.
If you would like additional information regarding this issue or any other tax related issues, please contact The Henssler Financial Group Tax & Accounting Division at 770-428-4025.
