In the U.S. there are certain tax credits that are available for people who have paid expenses for higher education. These credits are referred to as the American Opportunity Tax Credit, the Hope Tax Credit, and the Lifetime Opportunity Tax Credit. It is important to understand the distinction between a tax credit and a tax deduction. With a tax deduction the amount in question is subtracted from a persons income. So for an income of $50,000, for example, a tax deduction of $2,000 will lower the taxpayers income to $48,000, and a smaller amount of tax will be due based on the tax bracket of the individual. A tax credit, on the other hand, is much more beneficial. A tax credit of $2,000 means that the payer gets credit for having paid $2,000 of actual taxes. This would be the equivalent of a tax deduction for about $5,000 or $6,000 in the example above.
The American Opportunity Tax Credit is new in the 2009 tax year, and it is basically an extension of the Hope tax credit. This credit is available for students (or their parents if the student is a dependent) for the first 4 years of undergraduate study, and the student must be enrolled at least half time in a degree program. The credit can be as much as $2,500 per year, and school expenses that qualify include fees for enrollment, tuition, and any books, equipment and supplies that are course related. There are certain restrictions, and these include no drug related convictions, and a Hope tax credit cannot be claimed on the same return if parents have more than one student enrolled in college at the same time. Up to $1,000 can be refunded to the taxpayer. There are also income restrictions on this credit. For married taxpayers filing joint returns the credit phases out when income levels are between $160,000 and $180,000. For single taxpayers the program phases out at half those levels of income, or between $80,000 and $90,000.
This credit will no doubt be used less because the American Opportunity credit has expanded the Hope benefits. The Hope credit is only available for the first two years of college attendance, and the maximum credit is $1,800 per year. Expenses that qualify are those for enrollment and tuition. The restrictions are similar to those of the American Opportunity credit and include disqualification if the student has had any drug related convictions, and the student must be enrolled at least half time in a degree program. The income restrictions are from $50,000 to $60,000 for single taxpayers, and from $100,000 to $120,000 for people who are married and filing jointly. There are also some particular benefits for students who qualify because of coming from or attending school in certain Midwestern disaster areas. These areas pertain to certain counties of certain states for given periods. The particulars can be found in IRS documents that explain the Hope credit and are easily searched for on the IRS web site.
Lifetime Opportunity Tax Credit
The big difference between this credit and the others already discussed is that it can be taken for graduate studies as well as for undergrads. The credit can be up to $2,000, and the expenses that qualify for credits include those for college enrollment and tuition. In addition, the student is not required to be enrolled in an official degree program, and he or she can be taking courses which help acquire or enhance job skills. As with the Hope credit, there are provisions to give more help to people who qualify for the Midwestern disaster area situation.
Since the cost of higher education is so high these days and since it continues to rise at well over the general level of inflation, students and their parents need to be aware of all tax credits they qualify for in order to help lower the overall burden of financing a college education.
The American Opportunity Tax Credit is new in the 2009 tax year, and it is basically an extension of the Hope tax credit. This credit is available for students (or their parents if the student is a dependent) for the first 4 years of undergraduate study, and the student must be enrolled at least half time in a degree program. The credit can be as much as $2,500 per year, and school expenses that qualify include fees for enrollment, tuition, and any books, equipment and supplies that are course related. There are certain restrictions, and these include no drug related convictions, and a Hope tax credit cannot be claimed on the same return if parents have more than one student enrolled in college at the same time. Up to $1,000 can be refunded to the taxpayer. There are also income restrictions on this credit. For married taxpayers filing joint returns the credit phases out when income levels are between $160,000 and $180,000. For single taxpayers the program phases out at half those levels of income, or between $80,000 and $90,000.
This credit will no doubt be used less because the American Opportunity credit has expanded the Hope benefits. The Hope credit is only available for the first two years of college attendance, and the maximum credit is $1,800 per year. Expenses that qualify are those for enrollment and tuition. The restrictions are similar to those of the American Opportunity credit and include disqualification if the student has had any drug related convictions, and the student must be enrolled at least half time in a degree program. The income restrictions are from $50,000 to $60,000 for single taxpayers, and from $100,000 to $120,000 for people who are married and filing jointly. There are also some particular benefits for students who qualify because of coming from or attending school in certain Midwestern disaster areas. These areas pertain to certain counties of certain states for given periods. The particulars can be found in IRS documents that explain the Hope credit and are easily searched for on the IRS web site.
Lifetime Opportunity Tax Credit
The big difference between this credit and the others already discussed is that it can be taken for graduate studies as well as for undergrads. The credit can be up to $2,000, and the expenses that qualify for credits include those for college enrollment and tuition. In addition, the student is not required to be enrolled in an official degree program, and he or she can be taking courses which help acquire or enhance job skills. As with the Hope credit, there are provisions to give more help to people who qualify for the Midwestern disaster area situation.
Since the cost of higher education is so high these days and since it continues to rise at well over the general level of inflation, students and their parents need to be aware of all tax credits they qualify for in order to help lower the overall burden of financing a college education.
Comments
Post a Comment