US government broadens, extends student tax credits

Education tax credits are being extended, and the qualifications are being broadened to allow more people to take advantage of them.

The American Recovery and Reinvestment Act has replaced the expired Hope Credit, which could be claimed for 2008 and earlier tax years with the American Opportunity Credit.

The AOC applies to tuition and education-related expenses in 2009-10.

It also increases the maximum amount of the credit from $1,800 to $2,500, and includes individuals with incomes up to $80,000 and couples up to $160,000, higher than the Hope Credit.

"A credit is a dollar for dollar offset against your tax liability," said Adolph Neidermeyer, professor of accounting at West Virginia University.

According to Neidermeyer, an individual can use the credit to completely negate income taxes up to the $2,500 maximum.

This differs from a tax deduction where the amount is weighed against your tax rate.

For example, Neidermeyer said a $2,500 deduction to someone with a tax rate of 25 percent would allow them to write off $625.

Once the AOC expires, students and parents with student dependents can still claim the Lifetime Learning Credit, which provides up to $2,000 in credit for eligible taxpayers.

Both credits are nonrefundable, meaning the credits can reduce income tax up to the maximum amount, but individuals will not be refunded if their taxes are less than the maximum.

Kristin Doucette, junior criminology major, will take a closer look at her tax forms this year after learning about the credit.

"One of my parents usually just fills out my forms, and I sign it," Doucette said.

Working part-time at Olive Garden during the school year, Doucette qualifies for the credit and said she would be sure to get the necessary paperwork.

There are still deduction options available for individuals or couples who have incomes too high to qualify for the credits.

These taxpayers can claim tuition and fees up to $4,000.

The Recovery Act has created numerous tax credits, subsidies and incentives targeted at individuals and businesses.

Including the recently extended tax credit for first time homebuyers, and tax credits for health care coverage were expanded from covering 60 percent of costs to 80 percent while making more people eligible for credit.

Information about these credits and deductions as well as links to the necessary forms can be found at www.irs.gov/individuals/students/index.html