Tax Deduction For Students
By Eric Fortier
$2500 TAX CREDIT FOR FIRST FOUR YEARS OF COLLEGE
by Eric C. Fortier
Everyone is looking for an opportunity to save money with the current financial market and the rising cost of tuition.
This month, politicians began to publicize a $2,500 college tuition tax credit that was included in the American Reinvestment and Recovery Act (ARRA). Many families and students are not aware of the provision included in the legislation that modified the existing Hope Credit for tax years 2009 and 2010. The American Opportunity Credit is available for taxpayers who have an income of $80,000 or less; for married couples filing a joint return the limit is $160,000. This modification opens the doors for many families and students to take advantage of the credit.
Here’s how the credit works: college students or their parents can receive a tax credit for 100 percent of the first $2,000 spent on tuition and a credit of 25 percent of the next $2,000, which is $500. In order to receive the full $2,500, a student must have $4,000 in qualified expenses related to college.
What does qualified expenses mean? It includes tuition, housing, books, and other required course material. Books have never been eligible for education credits before, so students are encouraged to keep bookstore receipts.
In addition, 40 percent of the credit is refundable. Even if students or parents owe no tax, they can receive an annual payment from the credit of up to $1,000 for each student. A family is not limited to only one student. It can get the credit for each student in the household for the first four years of college.
Like other commuters here at Mercy, Michelle Grant works while attending college. When asked if she knew about the credit, she said, “Wow, that’s incredible. I didn’t know about the credit. Now that I know I will definitely take advantage of it!”
Student and parents who don’t know about the credit can’t take advantage of it. When filing your taxes this spring, in order to get the credit, students and families need to file Form 8863 and attach it to Form 1040 or 1040A.
It’s important for all to know that the savings are a tax credit, not a deduction. This means that families who owe a tax burden of over $2,500 will have their tax reduced by that amount. Families that owe less than $2,500 in tax will get the remaining amount as cash back.