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Education Tax Credits


Education Tax Credits

Roxanna Guinan
by Roxanna Guinan, Contributor

It used to be that parents spent a lot of time worrying about how they were going to be able to afford to send their kids to college.  The serious downturn in the economy and the surge in unemployment have precipitated an increase in adults returning to college, or seeking advanced skills to enhance their prospects of obtaining a new job, or hanging on to their current one.  To assist with these endeavors, the Federal Government is offering expanded education tax credits for as much as $2,500. Remember that while a tax deduction reduces the amount of your taxable income, a tax credit actually reduces the amount of income tax that you owe.

There have been some updates to the education tax credits available for each eligible student. Under the American Recovery and Reinvestment Act (ARRA), the Hope Scholarship Tax Credit was modified for 2010 and is now known as the American Opportunity Tax Credit (AOC). One of the revisions to the American Opportunity Tax Credit was to make it available to more taxpayers including those who owe no income tax and many with higher income levels than previously allowed.  As a result, a greater number of parents and students will now qualify for this tax and education credit, by using the American Opportunity Tax Credit, to pay for their higher learning expenses.

It’s important to learn as much as possible about your taxes and education, and stay updated on any changes. The updated education tax benefits encompass more funds for education, a broader allowance for courses, an increase in the length of education, and more eligible education-related expenses.

Education Tax Credits ― Income Qualification Levels

The amount of your American Opportunity Tax Credit is reduced if your modified adjusted gross income (MAGI) is between the following amounts:

  • $80,000 and $90,000 if you file as a single taxpayer
  • $160,000 and $180,000 if you file a joint tax return

If your modified gross income is $90,000 or more ($180,000 or more if you file a joint return) you are not eligible to claim the American Opportunity Tax Credit.

Education Tax Credits ― Who and What Is Eligible?

• The first four years of post-secondary education can now be claimed for the American Opportunity education tax credit when the student is enrolled at least half time in a program that leads to a degree, certificate, or other recognized educational credential for one academic period. Previously, this tax and education credit could be claimed for only the first two years of post-secondary education.

• You can claim the American Opportunity Tax Credit if you pay qualified tuition and related higher education expenses for an eligible student who is either yourself, your spouse, or a dependent for whom you claim an exemption on your federal income tax return. You cannot claim the American Opportunity Tax Credit if your tax filing status is “married filing separately.”

• None of the education tax credit is refundable if the taxpayer claiming the credit is a child [a] who is under age 18 (or a student who is at least age 18 and under age 24 and whose earned income does not exceed one-half of his or her own support), [b] who has at least one living parent, and [c] who does not file a joint tax return.

• The term "qualified tuition and related expenses" has been expanded to include expenditures for "course materials” which is defined as books, supplies, and equipment needed for a course of study (whether or not the materials are purchased from the educational institution as a condition of enrollment or attendance).