The American Opportunity Tax Credit is a tax credit for education instituted by President Barack Obama. The purpose of this tax credit is to make college more affordable by directly reducing the amount of money a person owes in taxes. Typically, these off-setting tax credits are viewed as more favorable than income-reducing tax deductions.
The maximum American Opportunity Tax Credit for the 2009 tax year is $2,500 in each of a student's first four years of college. If no taxes are owed, this credit will be partially refundable at a rate of 40%, which means a family could actually receive up to $1,000 from the government, even if they owe no taxes.
The American Opportunity Tax Credit is meant to offset 2/3 of the costs of a four-year public college education and effectively makes community college free for most students.