There are many different student tax credits that can help Americans pay for higher education.
What is the American Opportunity Credit?
The 2012 Taxpayer Relief Act extended the American Opportunity tax credit for college costs. The American Opportunity credit both increased the tax relief available for students from middle-income families and also extended relief for the first time to students from lower-income families.
It is important to compare the American Opportunity tax credit to the Hope Scholarship credit. The following page will summarize key information necessary for students to take the tax credit.
Important information about the American Opportunity Credit (AOTC)
- Families with a family member in college can benefit from a tax credit for tuition and fees. This is generally better than a deduction because a credit will reduce actual taxes. The maximum amount of the American Opportunity tax credit is $2,500. The credit is 100% of the fist $2,000 of qualifying expenses and 25% of the next $2,000, so the maximum credit of $2,500 is reached when a student has qualifying expenses of $4,000 or more.
- The American Opportunity tax credit is available for up to four years.
- The American Opportunity tax credit includes qualifying expenses such as textbooks. It is important that taxpayers record receipts for any textbook purchases and be able to show them to the IRS if needed.
- The American Opportunity tax credit is 40% refundable. This means that someone who has at least $4,000 in qualified expenses and who would thus qualify for the maximum credit of $2,500, but who has no tax liability to offset that credit against, would qualify for a $1,000 (40% of $2,500) refund from the government.
- Taxpayers with somewhat higher incomes can qualify, as the phaseout of the credit begins at AGI in excess of $80,000 ($160,000 for joint filers).
Extension of the American Opportunity Credit
This is one of the many tax incentives that are available for taxpayers to take in order to reduce higher education costs. See the following links for more student tax tips.