Special IRS Web Section Highlights Important Credits and New Additions

The IRS posted this new press release recently highlighting back to school tax breaks, an expansion of the 529 plan, and the relatively new $2,500 college tax credit. Check out an excerpt of the release below.

The new Tax Benefits for Education section on IRS.gov includes tips for taking advantage of long-standing education deductions and credits. The “one-stop” location for higher education information includes a special section highlighting 529 plans and frequently asked questions. The Web section also features two key changes that will be in effect during 2009 and 2010 that were included in the American Recovery and Reinvestment Act (ARRA), enacted earlier this year.

One change allows families saving for college to use popular 529 plans to pay for a student’s computer-related technology needs. Under the other change, more parents and students will be able to use a federal education credit to pay part of the cost of college using the new American opportunity credit.

“With many families struggling to afford college, we want every eligible taxpayer to know about their options and take advantage of all the tax breaks they can,” said IRS Commissioner Doug Shulman. “529 plans have become a very attractive way to save for college, and our Web section is designed to help people get information about these plans. In addition, the new American opportunity credit can help many parents and students pay part of the cost of the first four years of college.”

The New, Improved College Tax Credit

This year there is a new and improves college tax credit and Forbes.com 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.