Usually, when one thinks of the 2009 stimulus act, they think of how it bailed out banks and the car industry. What they don't realize is there was actually something written in it to reward going for advancing one's education.
A piece was added that made it possible to get a tax refund for going to college, and that refund can come to thousands of dollars. Those who are attending on campus schools, as well as taking an online college course or several, can benefit.
This new provision is the American Opportunity Credit, an expansion and renaming of what was previously the Hope Credit. It can even be used in this April's income tax filing. Determining if and how you fit in under this benefit is imporant for every student.
According to the IRS, the differences between the Hope and Opportunity credits are several-fold. The Opportunity Credit entitles more students (or their parents) over the next two years to get a tax credit to pay for not only tuition and fees, but also college-related expenses such as required course materials. It also includes many more people with higher incomes and those who owe no tax, which the Hope didn't.
The credit is now open to single filers with a modified adjusted gross income is $80,000 or less. For married couples filing a joint return, the ceiling is now $160,000 or less. Previously, the limits were $48,000 and $96,000 respectively.
This does not mean you can immediately apply it to your next tuition bill. You have to wait to file for it with your next income tax filing. This means if you started college this September, you'll have to wait until April 2010 to claim it.
How the actual credit works is that one is entitled to a 100% refund for the first $2,000 in tuition, fees and/or costs related to going for a degree. After that first $2,000, one is entitled to an additional 25% refunded up to the next $2,000. So, for example, if the costs are $6,000; one gets a 100% refund for the first $2000, 25% of the next $2,000 (or $500) and nothing for the last $2,000. $2,000 plus $500 and $0 equals a $2,500 credit when filing the following April.
One has to be careful about the "cost related" bit though. Buying a computer does not automatically make it refundable. On the other hand, if a class or school forces one to buy a laptop then it's an item that can be claimed.
Another interesting thing that's different from the Hope is the Opportunity could turn into a refund. This could happen even if the filer is will get a tax refund without the credit. The difference is the cap is a bit tighter. The maximum refund is only $1,000 instead of the full $2,500.
It should be noted the Opportunity credit is good for only the first two years. For those planning their third year or more, one has to apply for a Lifetime Learning credit.
Also, while the Opportunity credit is currently only good for the 2009 and 2010 returns, there is talk it might be extended further. For more information, check with a tax expert, a financial aid officer or go to the IRS website and look up American Opportunity Credit.
Financial reasons, as much as flexibility, are considered by students when they enroll in an online degree program. Exploring this refund, as well as potential monies prior to starting school, such as scholarships and grants may enable more students to attend and further their careers than ever before.
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