President Obama has created a tax break for college students in these hard times.
A tax deduction of up to $4,000 can be claimed for qualified tuition and fees paid, making college more affordable for most Americans.
Under the American Recovery and Reinvestment Act (ARRA), more parents and students will qualify over the next two years for the American Opportunity Tax Credit to pay for college expenses.
The new tax credit modifies the existing Hope Credit for tax years 2009 and 2010, making the Hope Credit available to a broader range of taxpayers, including many with higher incomes and those who owe no tax (for information on Hope credit see www.irs.gov).
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. This is an opportunity for all students from freshman to seniors.
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, meaning that the majority of college. Age of students will fall under these guidelines.
These income limits are higher than the existing Hope and Lifetime Learning Credits.
www.irs.gov states, “This universal and fully refundable credit will ensure that the taxpayers will receive a tax credit based on 100 percent of the first $2,000 of tuition, fees and course materials paid during the taxable year, plus 25 percent of the next $2,000 of tuition, fees and course materials paid during the taxable year. Taxpayers will also be able to reduce their tax liability one dollar for each dollar of credit for which they are eligible. If the amount of the American Opportunity Tax Credit for which a taxpayer is eligible is more than their tax liability, the amount of the credit that is more than your tax liability is refundable to the taxpayer, up to a maximum refund of 40 percent of the amount of the credit for which you’re eligible.”
The credit is claimed using Form 8863, attached to Form 1040 or 1040A. The American Opportunity Tax Credit is for amounts paid in 2009 and 2010 only. Students may be eligible for the lifetime learning credit for any tuition and fees required for enrollment paid after 2010. Taxpayers cannot claim the tuition and fees tax deduction in the same year that they claim the American Opportunity Tax Credit or the lifetime learning credit.
Students also cannot claim the tuition and fees tax deduction if anyone else claims the American Opportunity Tax Credit or the lifetime learning credit for students in the same year.
“I pay out of my pocket. It sounds good definitely. It gives me a free education and allows me to use my money for other expenses,” said Robert Minchew, 21, a sophomore at TJC.
“It feels good because some people can’t afford a higher education, and this would help them out,” Jacoby Jordan, 19, freshman nursing student said.
With more and more high school graduates putting off higher education because they can’t afford it, President Barack Obama’s tax credit might help provide the change students and families need.
“I feel that without programs like these and financial aid it would be harder for me to attend school,” Jordan said.
The new tax credit has a refund for books, tuition and school supplies.
“I realize that the price of books are expensive. Students deserve any break they can get,” Dee Dee Hanson, from TJC College Books said.
During his April 5 radio address to the country, Obama reached out to the government to stop backing private loans to college students and replace them with direct financial aid to young people.
“The surest test for success in the challenging economy is a college degree or other training, yet access to higher education continues to shrink as costs rise,” Obama said.
“In a paradox of American life, at the very moment, it’s never been more important to have a quality education, the cost of that kind of education has never been higher. Yet we have a student loan system where we’re giving lenders billions of dollars in wasteful subsidies that could be used to make college more affordable for all Americans,” Obama said during his weekly radio address to the nation at the White House.
For more information about this topic, go to www.irs.gov.