The new American Opportunity Tax credit has been expanded to include educational expenses like books and equipment necessary for your studies. Stock photo
As part of the American Recovery and Reinvestment Act, the federal government has announced an expansion of an existing educational tax credit. The credit was announced this month by the California State University system to inform students and parents that they may be eligible. This change is for tax years 2009 and 2010.
The American Opportunity Tax credit (AOC) was created by the stimulus plan. This was an expansion of the Hope credit, which was introduced in 1997. After an increase of the Hope credit last year from $1,650 to $1,800 it has now been raised to a maximum of $2,500.
Other changes from the Hope credit to the AOC is that the first four years of post-secondary education, rather than just the first two, can be covered. Although the credit now includes the first four years of higher education, the expansion of the credit is only for two years. After 2010, students can apply for the lifetime learning credit. To apply for this, a student must be enrolled in a post-secondary educational institution and be paying the qualified tuition and fees.
The applicable fees have been expanded to include textbooks; however, this is not the only expense that can be claimed under the AOC. The qualified expenses have also been expanded to include books, supplies and equipment that are needed for education as well as the tuition and fees the Hope Credit included before.
At Cal Poly, students spend hundreds of dollars on textbooks every quarter. Some students can spend as much as $500 per quarter. Depending on a student’s field of study, their books can cost more. Biological sciences senior Sabina Gill says she spends an average of $300 per quarter and when taking classes in the summer, her textbook expenses for the year can reach as high as $1,200. This new credit will allow some eligible students, or their parents, to claim these expenditures for federal income tax credit.
If the student is claimed as a dependent on their parents taxes, then the parent must claim the credit.
“My dad pays for my books, but I would tell him to (claim the credit),” psychology senior Melissa Fake said.
In order to apply for the tax credit, you must pay for “qualified tuition and related expenses” and have a modified adjusted gross income of $80,000 or less or $160,000 for joint filers. However, filers whose income is between $80,000 and $90,000 (or $160,000 and $180,000) can also claim the credit, but the credit is reduced.
For families or independent students who are eligible, this credit provides a way to get back some of the money spent on school.
“My parents will take any advantage on taxes they can get,” biomedical engineering sophomore Jose Beltran said.
Even if the tax payer does not owe any taxes, the credit is now 40 percent refundable, another change from the previous credit. This means after the tax payer files their taxes and claims the AOC, they can receive a refund of up to $1,000.
Although it is simple to determine whether a filer is eligible, it is not automatic.
To claim the credit, filers must fill out Form 8863 and attach it to a Form 1040 or a 1040A. Form 8863 is a single form used to apply for all Education Credits including American Opportunity, Hope and Lifetime Learning Credits.
The tentative calculation for the AOC is done by first taking the total value of qualified expenses (the maximum to be used is $4,000) and subtracting $2,000 from this number. If the resulting amount is negative, the original number will be the tentative credit. Next, you multiply the last number by 25 percent then add $2,000.
This credit can be taken advantage of for the next two tax years. The form can be found online, in the Robert E. Kennedy Library or anywhere other tax forms are located.