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American Opportunity Tax Credit - Definition and Overview

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Definition:

Click here to read about this credit and the 2009 stimulus package.

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.

The American Opportunity Tax Credit essentially replaces the Hope Scholarship, though the Lifetime Learning credit still remains available to parents and students for other expenses.

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