The American Opportunity credit allows college students to claim up to $4000 of educational expenses, an increase of $700 more than previous educational tax credits.


New tax credit can increase students' tax refunds


A new tax credit for the 2009 tax year allows students to receive a tax credit up to $2500 of the out-of-pockets costs for tuition and related expenses, including the cost of course materials. The American Opportunity Credit is an expansion of the already-existing Hope Education credit, which applied only to the first two years of college. The new credit allows students to claim a credit for expenses paid during the first four years of a college education.

Taxpayers who paid for tuition and related expenses during the 2009 tax year are eligible for a tax credit of 100 percent for the first $2000 of tuition, fees, and course materials, plus 25 percent of the next $2000 of expenses. For every dollar of credit for which a student is eligible, their tax liability will reduce by one dollar.

“Most college students will be able to claim this credit since the phase-out starts with a modified adjusted gross income of $80,000 for single filers or $160,000 for joint filers,” Chris Hudson, Certified Public Accountant and managing shareholder of Hudson & Co. CPAs, PLLC, said

The American Opportunity credit allows students to claim more than tuition. According to the IRS website, the term “related expenses” now includes the cost of books, supplies, and equipment, even if the materials were not required as a condition of enrollment. The Hope credit did not allow for deductions for those expenses unless the materials were required to attend the educational institution.

“I think it is amazing that there are strides being made to help college students out. There are so many of us who must support ourselves through college, so any help we can get is amazing. I just wish I was eligible for it,” Jake Blocker, advertising junior, said.

IRS estimates show that the credit can help over 4 million additional college students afford the cost of an education by providing over $13 billion in estimated benefits for students and families. Students can claim the credit for expenses for the years 2009 and 2010 only, although President Barack Obama has proposed making the credit permanent.