DALLAS - One lesson you may want to learn before cracking a book this fall is that under the American Recovery and Reinvestment Act (ARRA), more parents and students will qualify for a tax credit, the American Opportunity Credit, to pay for college expenses.
This credit modifies the existing Hope credit for tax years 2009 and 2010, making it available to a broader range of taxpayers, including many with higher incomes and those who owe no tax. It also adds required course materials to the list of qualifying expenses and allows the credit to be claimed for four post-secondary education years instead of two. Many of those eligible will qualify for the maximum annual credit of $2,500 per student.
The full credit is available to individuals whose modified adjusted gross income is $80,000 or less, or $160,000 or less for married couples filing a joint return. The credit is phased out for taxpayers with incomes above these levels. These income limits are higher than under the existing Hope and Lifetime Learning Credits.
The American Opportunity Credit can mean more money in your pocket with regard to your tax return.
"You will be able to reduce your tax liability one dollar for each dollar of credit for which you're eligible," said Clay Sanford, Dallas-based IRS spokesman. "If the amount of the American opportunity tax credit for which you're eligible is more than your tax liability, then the amount of the credit that is more than your tax liability is refundable to you--up to a maximum refund of 40 percent of the amount of the credit for which you're eligible."
Visit IRS.gov to find more information about the American Opportunity Credit and other tax benefits for education.