Wednesday, March 11, 2009

The New, Improved College Tax Credit

This year there is a new and improves college tax credit and has broken it down for everyone to understand. You can find a segment of their article below, but the full post can be found here.

There's a new $2,500 college tax credit for 2009, 2010 and possibly beyond. Even if your family hasn't qualified for earlier college tax credits, this one might put thousands of extra dollars in your pocket.

Called the American Opportunity Tax Credit, the new benefit was authorized for two years by the stimulus bill enacted in February. But President Barack Obama has already proposed making it permanent and it has some powerful Democratic supporters.

Technically, the new credit is an expansion of the old Hope college credit. But many more families (including both low-income and upper middle-income) qualify. Married couples filing jointly who have modified adjusted gross income of up to $160,000 ($80,000 for single parents) can claim the full credit for 2009 and 2010. Above that income level, the credit gradually phases out, with those earning up to $180,000 ($90,000 for singles) eligible to claim a partial credit. By contrast, the old Hope credit was available in full for 2008 only to couples with incomes below $96,000 ($48,000 for singles). The expanded credit can even by claimed by taxpayers paying the alternative minimum tax (AMT).

The new credit is also partially refundable. What that means is a family which doesn't earn enough to pay income taxes will get $1,000 back. A family which would otherwise owe, for example, $2,000 in income tax, should qualify for the full $2,500--it would have its $2,000 tax bill wiped out and get $500 back as part of the refundable credit.

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