- Looking to advance or change careers, many working adults are headed back to the classroom
For many American’s, the ideal of living in the “Land of Opportunity” seems to be quickly fading into nothing more than a distant memory. It’s unfortunate that the turn of our economy has dimmed the hopes of so many, but there is still opportunity to be had.
It is widely understood that higher education generally means higher incomes, so a good deal of Americans who are facing long-term unemployment or instability in their current field are looking at their options. If you’re one of the thousands out there picturing yourself back in the classroom, we’ve put together a comprehensive series to help you better understand the tax incentives available to make your academic goals a reality.
We’ll start with the new(est) kid on the block, the American Opportunity Tax Credit. My last post gave a brief overview of the credit, but here I will delve a little deeper to clarify some of the qualifications and benefits.
The Goods – Part 1
The American Opportunity Credit used to be called the Hope Credit but has been modified for 2009-10 to affect a greater range of tax payers, including those at the higher end of the income scale all the way to those who don’t owe any taxes at all. With unemployment still holding at record rates and the economy still lagging, it may be extended in 2011, but as of this point nothing official has been stated.
This is a refundable (partial) tax credit of up to $2,500 per student per year that is available for the first four years of postsecondary education.
Highlights:
- The credit is equal to 100% of the first $2,000 spent and 25% of the next $2,000. That means the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualified expenses for an eligible student
- Tuition, fees, books, supplies & equipment needed for a course of study qualify
- Applies to the first 4 years of post secondary education only
- Taxpayer may use payments made by dependents for the credit
- Even people who owe no tax can get an annual payment of the credit of up to $1,000 for each eligible student
- The $2,000 credit is applicable per STUDENT, not per tax return
Those Who May Claim This Credit:
- Student must be the taxpayer, spouse or dependent, pursuing a degree and attending school at least 1/2 time
- This education tax credit is available for those with a modified adjusted gross income (MAGI) is $80,000 or less (for married couples filing a joint return, $160,000 or less)
Those Who Do Not Qualify:
- A married person filing a separate return (regardless of income)
- joint filers whose MAGI is $180,000 or more
- Single taxpayers, heads of household and some widows and widowers whose MAGI is $90,000 or more
- Students pursuing degree’s beyond the first 4 years of post-secondary education
Not to worry though, Graduate students aren’t completely out in the cold. They may qualify for the lifetime learning credit and the tuition and fees deduction, which takes us into our next couple of blogs.
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Great, thanks so much for the feedback. If you have any other tax related questions you just can’t find answers to, feel free to post them on our Ask Fred page and I’ll be happy to take a look at it and give you some info!
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Glad to hear it Badu, we do our best to make sure we present this “not so exciting” material in a way that you and everyone else can absorb. It’s good to hear we’re on target, thanks!
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Tamatha, you got it, we love educating people and giving them the tools they need to make educated decisions. It’s amazing how much freedom one gains by just a little smart planning. Keep in touch!
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You’re welcome, I hope the tax information we provide will be useful to you. Enjoy!
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