The Stimulus Package and College Costs - An Update on the American Opportunity Tax Credit
Thursday February 12, 2009
As President Obama's stimulus package makes its way towards being law, many parents are asking if it includes any help with spiraling college costs. Specifically, many are asking whether the American Opportunity Tax Credit that was talked about during the election is finally coming to pass.
Well, here's what I can glean from my reading of the most recent version of the bill:
- It appears the existing Federal Hope Scholarship is being renamed the American Opportunity Tax Credit, as opposed to the introduction of a completely new tax credit.
- These benefits will apply to expenses paid in 2009 and after.
- The American Opportunity Tax Credit is equal to 100% of the first $2,000 in expenses and 25% of the next $2,000, for a possible total of $2,500.
- Students will be eligible for their first four years of college, as opposed to just the first two as currently allowed.
- Books and courses materials will now be eligible for the credit
- The adjusted gross income limit to qualify for the credit is raised to $80,000 for single taxpayers ($160,000 for joint).
- Up to 30% of the credit may now be "refundable."
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is the new credit per student or per family
As of right now, it appears to be per student.
Does this credit apply to adult grad students? My 28 year old daughter is taking 1 grad class per semester, over $4,000. per year, unreimbursed. Is she eligible, or jus undergrad full timers?
Regarding grad students… right now the American Opportunity Tax Credit is just for the first four years of undergrad. That’s actually a bump up from its previous incarnation as the Hope Scholarship, which only gave teh credit for the first two years.
However, your daughter would be likely be eligible for a different credit, the Lifetime Learning Credit, which is basically 20% of her costs up to a $2,000 limit. Alternately, she’d also be able to take the tuition deduction which got extended into 2009.
Here’s some links:
http://collegesavings.about.com/od/taxbreaksforcollege/a/lifetimecredit.htm
http://collegesavings.about.com/od/taxbreaksforcollege/a/deducttuition.htm
I’m in my third year of undergrad and am pursuing a medical career. Am I eligible for this savings next school year, and what are possible solutions for the next several years of school since I am going to be a surgeon? I’ll be in for the next seven years or so. Thank you for any advice.
Jeremy-
The American Opportunity Tax Credit is being extended to the first four years of college, so it sounds like you’re eligible.
In grad school, you’ll be able to claim the Lifetime Learning Credit which can save you up to $2,000 per year.
http://collegesavings.about.com/od/taxbreaksforcollege/a/lifetimecredit.htm
I’d also look into Loan Forgiveness Programs for doctors. They can save you some big time dough, just for working at certain facilities.
http://collegesavings.about.com/od/financialaid/a/loanforgiveness.htm
Is there anything in the package for repayment of loans – as it stands I will finish paying for my education on social security
In 2009, will the American Opportunity Tax Credit also be allowed to be doubled (ie. $5,000)for anyone who attends college in the Midwestern Disaster Area? The previous tax code allowed the Hope Credit and the Lifetime Learning Credit to be doubled for tax years 2008 and 2009 for anyone attending college in the Midwestern Disaster Area.
I am currently a first year undergrad and would like to know when will this take in effect and how will i know if i can receive this benefit while attending a state school on financial aid?
I am a student and do not work. I live off of my college saving from my parents and financial aid. I usually do not file taxes, I have no income. Am I able to have a refund to pay off my loans, do I need to file without an income and if I do not pay taxes, how can I get help with my loans?
My daughter works part-time and is also in her first year of college, part-time. I don’t claim her as a dependent on my tax forms. If I pay for her tuition and books, would I be eligible for the new tax credit or would she need to pay the expenses herself to be eligible for the credit?
My husband and I have adjusted gross income of $204,000.00 In 2009 we will have 3 children in college. Any belief that the American Opportunity Tax Credit will be available to us?
“Is there anything in the package for repayment of loans – as it stands I will finish paying for my education on social security”
Elizabeth, there is nothing in the current bill that helps to repay existing loans. There are some programs out there for certain professions though. Check out the article below.
http://collegesavings.about.com/od/financialaid/a/loanforgiveness.htm
“In 2009, will the American Opportunity Tax Credit also be allowed to be doubled (ie. $5,000)for anyone who attends college in the Midwestern Disaster Area?”
As I understand it, no the AOTC will not be doubled under the Midwestern Disaster Provisions. However, qualifying parents can supposedly waive the new AOTC in favor of the old rules if it results in more money.
“I am currently a first year undergrad and would like to know when will this take in effect and how will i know if i can receive this benefit while attending a state school on financial aid?”
The new American Opportunity Tax Credit applies to 2009 and 2010. However, if you started school in 2008, you can claim the Hope Scholarship for that period.
Here’s info on the Hope Scholarship
http://collegesavings.about.com/od/taxbreaksforcollege/a/hopecredit.htm
Yes, you can claim these credits even if you are on financial aid. However, they only apply to people who have paid some tuition costs out of pocket. If you’ve gotten a full ride, you won’t likely be able to use the credit.
“My daughter works part-time and is also in her first year of college, part-time. I don’t claim her as a dependent on my tax forms. If I pay for her tuition and books, would I be eligible for the new tax credit or would she need to pay the expenses herself to be eligible for the credit?”
They haven’t specifically addressed this as far as I’m aware, BUT based on the how they previous credits operated, you’d only be able to claim her expenses if she’s a dependent. Otherwise, she’s got to pay them and use the credit.
“My husband and I have adjusted gross income of $204,000.00 In 2009 we will have 3 children in college. Any belief that the American Opportunity Tax Credit will be available to us?”
Based on the last version of the Stimulus Package I saw, married filing joint couples are phased out between $160,000 and $180,000. So, at $204,000, I don’t think you’ll see any benefit.
I’m curious how the IRS defines each year of undergrad… What about students who may have taken a few undergrad classes some years ago, then took a break, then came back to take community college classes?
2008 was the first year that the student was in a degree-seeking program with a regular part-time school schedule, but some of the credits from earlier classes will still count for him. Does he count as a freshman/first-year? Is the “first” year of undergrad designated by actual year or number of credits? Basically, I’m wondering if he’s eligible for the Hope Credit on his 2008 taxes and what kind of credits he might be able to take in the future. He’s paying out of pocket right now. Thanks!
ADub-
It sounds like they’re still eligible to claim the credit for 2008.
We are married filing jointly with income at $150,000. We will have 4 children in college in 2009–each child’s tuition/book expense will exceed $4000 per student. All are claimed as dependents. Will we be eligible for a $10,000 tax credit in 2009? Please give me at references as I’d love to change my wihtholding if this is the case!
How can I apply for this Tax Credit? Or is it available yet…
are grandparents eligible for this tax credit for paying for their grandchildren’s tuition?
I am currently an undergrad with 6 credits left to graduate. I attended college from 04 – 08, and I took a break for the 08-09 school year. If I finish my degree as a part-time student for Fall 2009 (my 5th year as a student), could I receive the credit?
Does the parents have to be helping pay for your college to get this credit.Me and my wife both are currently enrolled in our first year of college.We are both majoring in Criminal Justice.
How do I apply for this credit????
My son is beginning his 5th year of undergraduate classes in the fall. Is he eligible for the tax credit?
Hi Bob-
To “apply” for the credit, you simply file your tax return. There will likely be an additional IRS form for the American Opportunity Tax Credit, but as of yet, they haven’t made it public.
For more information on claiming IRS tax credit for college costs, visit http://www.irs.gov/publications/p970/
Jane says:
“My son is beginning his 5th year of undergraduate classes in the fall. Is he eligible for the tax credit?”
Ken says:
I don’t think so Jane. If he hasn’t been full-time in any of those years, you may want to talk to your tax expert about whether or not he can still qualify.
If he doesn’t you can still claim the 10% Lifetime Learning Credit. Here’s the info: http://collegesavings.about.com/od/taxbreaksforcollege/a/lifetimecredit.htm
so there is no form yet to fill out to start the process?
“So there is no form yet to fill out to start the process?”
Note yet, as far as I know. When the IRS releases the 2009 tax forms, there’ll be one for that.
Does the AOC apply to a returning student pursuing a second undergraduate degree, after already graduating with an undergraduate degree (30 years ago)?
“Does the AOC apply to a returning student pursuing a second undergraduate degree, after already graduating with an undergraduate degree (30 years ago)?”
As far as I’ve heard, it only applies to the first four years of undergraduate education, regardless of whether it results in a degree. So, if you’ve already had four years of undergraduate education in your life, you’re no longer qualified.
Keep checking back… If I hear any differently, I’ll post it here!
How do i apply for this??
Any chance we might see a head of household mid range for these kinds of deductions. I am a single mom with 3 kids in college and make just over the max. Now, with one more mouth to feed and possibly additional car/insurance payment, a married couple in the same place as me financially can make twice what I do and get a credit. I don’t think the laws are really considering the plight of a single parent.
“Any chance we might see a head of household mid-range for these kinds of deductions.”
It’s unlikely based on the history of the Hope Credit, which this replaced. Under that credit, single parents filing head of household and people filing as a true are lumped into one category. See the form below:
http://www.irs.gov/pub/irs-pdf/f8863.pdf
I hold out some hope though, since this credit was meant to help make college affordable for families who truly need it, as well as the fact that President Obama was raised in a “head of household” family for a portion of his life.
Hi Amber-
To “apply” for the credit, you need to file your 2009 or later tax return. There will likely be an additional IRS form for the American Opportunity Tax Credit, but as of yet, they haven’t made it public.
For more information on claiming IRS tax credit for college costs, visit http://www.irs.gov/publications/p970/
My daughter is a PSEO student that will be taking extra classes this summer that we will need to pay for. Since she hasn’t graduated from high school, but is in her 1st year of undergrad studies, do you know if we would be eligible for the AOTC?