Do You Qualify for the American Education Opportunity Tax Credit?
Great news for everyone who thought they were going to get caught without tax credits for their final years of college: A new tax deal has made the American Education Opportunity Tax Credit permanent.
The program, which had been scheduled to expire in 2017, gives students or parents up to a $2,500 annual tax subsidy for each of the first four years of undergraduate studies. The credit has made college a more affordable option for numerous students since it was created in 2009.
Who benefits from the tax credit?
Many people who pay certain college expenses for dependent children or for themselves are eligible for the credit. Taxpayers can claim more than one credit if there’s more than one student in the household – a husband and wife or multiple children, for example.
The credit covers 100% of the first $2,000 in eligible expenses, plus 25% of the next $2,000 in expenses for a total of $2,500 a year.
Because it’s a credit and not a deduction, the program reduces the taxpayer’s liability dollar for dollar. The credit is partly refundable, meaning those who file tax returns can get money back even if they didn’t pay in that amount in taxes.
There are income limits for receiving a full credit: $80,000 a year modified adjusted gross income for single filers and $160,000 for those filing joint returns. Taxpayers who earn up to $90,000 a year ($180,000 for joint filers) can receive partial credits.
What students qualify?
To be eligible, students must be enrolled in programs that lead toward a degree or certificate. They must carry at least a half-time academic load. Anyone convicted of a felony drug offense is not eligible.
What expenses are covered?
Covered expenses include tuition and fees, supplies, and equipment. A computer is a covered expense if one is required for coursework.
Things such as room and board or medical expenses are not covered expenses.
There are other tax tools that can help students cover the cost of their educations. For example, 529 saving plans, which involve setting aside money in tax-free accounts, are thought of primarily as tools for parents but adult students can take advantage of the program, too.
The Lifelong Learning tax credit also is an option, and it has the advantage of extending to graduate school.
For students looking for ways to make college more affordable, programs such as the American Education Opportunity Tax Credit can be a big help. There are income limits and expense restrictions, but those who quality will find welcome assistance in paying for their degrees.
Written by Ashford University staff