As the drudgery of tax season rears its head, there is at least one thing students can be excited about: a $2,500 federal tax credit.
The American Opportunity Tax Credit, which was included in the 2009 economic stimulus package and extended in 2010, can help students and families offset the cost of college.
According to information from the IRS, the credit is worth up to $2,500 and can be claimed for expenses from the first four years of post-secondary education including tuition, room and board and materials needed for courses.
The AOTC represents a revision and expansion of the Hope Credit, a previously existing provision designed to help reduce the price of higher education which had only applied toward the first two years of college expenses for a maximum tax credit of $1,800.
To be eligible to claim the AOTC, a taxpayer must have a federal income tax return with a modified adjusted gross income of $80,000 or less. Joint filers with a modified adjusted gross income of $160,000 or less are eligible as well.
“The tax credit is basically another option for students and families to take advantage of,” said Dennis Chavez, director of financial aid at Binghamton University. “Many of our students apply for financial aid, and the average student should be eligible.”
The office of Senator Chuck Schumer, who played an integral role in the AOTC’s creation, recently revealed that $1 billion in educational tax credits went unclaimed last year, when the AOTC was first available. A recent Treasury Department report stated that just 43 percent of families that were eligible for the credit claimed it last year.
With the expansion of the Hope Credit as the AOTC, Schumer hopes to see the credit claimed by many more families.
“At a time when the cost of a college education is rising faster than ever, $2,500 could make a real difference in a family’s ability to pay tuition,” Schumer said in a speech at Schenectady County Community College this past December.
The senator added that there is a second chance for those who were not aware of the credit in 2009. As part of the Hope Credit’s revision, the Senate passed a two-year extension that makes it possible for people to continue to claim the credit for expenses in 2009.
“The bad news is that far too many families don’t know that this credit exists, but the good news is that it’s not too late to put that cash in your pocket, even if you forgot to take the credit last year,” Schumer said.
Chavez expressed hope that students and their families will claim the credit. He said that because many people did not make use of the Hope Credit when it was first in place, financial aid services are making a concerted effort to get word out about the AOTC.
“I would like to think that our students and families will take advantage of the opportunity. We sent out notices to families and students — I think that our students have the information to do so,” Chavez said.
Chavez also pointed out that seeking ways to pay for college other than direct financial aid can make tuition easier to afford.
“We always talk about the educational tax credits so families are aware of these types of nontraditional aid,” Chavez said. “The credit is another way of helping the average family bridge the gap of meeting the cost.”