Education Tax Credits

What is a Tax Credit?

A Tax Credit is an amount that one is allowed to subtract from his taxes, that he is liable. Bills on college costs are entitled for a certain amount of subtraction from the bill later on. There are two different tuition tax credit programs. The amount of the credit varies and is dependent to a number of rules, including which credit you use, the purpose of the money and the area of the country you live in.

The American Opportunity Tax Credit

The American Opportunity Tax Credit is a refundable tax credit for undergraduate college educational expenses. The American Opportunity Tax Credits replaces the Hope Credit for 2011 and 2012.This includes 100% of eligible expenses up to $ 2ooo plus 25% of expenses above$ 2000. One difference is that families who owe very little tax or no tax may be able to get some of the credit paid back on to them directly. Also the credit can be applied to course- related books and supplies in addition to tuition fees. The maximum credit is $ 2500 for qualified tuition and related education expenses for each eligible student. The American Opportunity Tax Credit reduces the amount of federal individual income taxes you may have to pay. A portion of the American Tax Credit, 40 percent, is refundable even if you do not have a tax liability.

History

The American Tax Credit is partially refundable tax credit detailed in Section 1004 of the American Recovery and Reinvestment Act of 2009. The Bill introduces the American Opportunity Tax Credit, which would be in effect for 2009 and 2010. The Act mentions that provisions are specific to tax years 2009 and 2010 for the first 4 years of higher education, increases the Hope Scholarship Credit to 100% qualified credit, 40% of the credit is refundable and the tax credits are subjected to a phase- out for taxpayers with adjusted gross income in excess of $80,000.

Originally proposed by President Barack Obama to help students and families pay for post- secondary education, the proposal claims for a $4000 credit in exchange for 100 hours of community service. The stated goal of the credit was to, cover two- thirds the cost of education at the average public college or university and make community college tuition completely for more students. The new Bill on education tax credits is the best of the three as it is a higher credit than the Lifetime Learning Credit and a$4,000 deduction at most provides $1,400 in relief.

Questions:

• What is Tax Credit?
• What are the specifications in the American Opportunity Tax Credit?