What Is the American Opportunity Tax Credit?
The American Opportunity tax credit was introduced in the American Recovery and Reinvestment Act --- often known as the federal stimulus --- to help make college more affordable. The credit allows qualifying taxpayers to write off some of the costs of college on their income tax return, which can be claimed on an attachment to the standard income tax return form called Form 8863.
Other People Are Reading
-
Background
-
The American Opportunity tax credit was approved by Congress as part of the American Recovery and Reinvestment Act, which was passed in early 2009. The goal of the legislation was to stimulate economic growth through new spending by the government. Some of this spending came in the form of projects, new programs and grants, while others came as tax credits and cuts for primarily middle class families. The American Opportunity tax credit expanded an existing tax credit for higher education expenses called the Hope credit.
Eligibility
-
The American Opportunity tax credit expands on the existing credits for higher education by increase the number of people who are eligible to claim it. The Hope credit was only available for filers making less than $50,000 a year when filing as a single taxpayer. The American Opportunity tax credit, by contrast, may be claimed by any individual taxpayer making up to $80,000 a year. Any joint filer making up to $160,000 per year may also claim this credit toward education expenses. Those who make up to $90,000 individually or $180,000 jointly may also claim the credit, but will not receive the same level of benefits. A taxpayer making more than $90,000 individually or $180,000 jointly cannot claim the credit.
-
Credit Amount
-
While the size of the credit depends somewhat on the taxpayer's income and expenses, most families will be eligible to claim $2,500 per student, as of January 2011. This credit cannot exceed the amount paid toward tuition and other expenses for the tax year. Generally, taxpayers can claim the full credit for the first $2,000 paid toward higher education and for 25 percent of all expenses paid beyond that. The credit can even be claimed if the taxpayer has no tax liability. In this case, the taxpayer will not only pay no taxes for that year, the credit will allow him to receive a refund for up to 40 percent of the total credit claimed.
Deductible Expenses
-
Unlike the Hope credit, the American Opportunity tax credit can be deducted for many college-related expenses. In addition to tuition, taxpayers may claim the Hope credit on textbooks, required equipment, fees and other associated costs of college. The credit may only be claimed on expenses that are required of the student as a condition of enrollment in the institution. For example, a taxpayer cannot claim the credit on a new computer purchased for the student unless the computer is listed by the institution as required for admission, enrollment or attendance. Most public institutions provide computers for their students to use and therefore don't require students to purchase a computer.
-
References
Resources
- Photo Credit tax form image by Kirill Zdorov from Fotolia.com
