Educational Credits Enhanced

Educational Credits Enhanced
American Opportunity Tax Credit is a new name for existing educational tax credits. The new law temporarily enhances the existing HOPE education credit–for 2009 and 2010 only– in amount (from a maximum $1,800 to $2,500 per year), in scope (extending it to all four years of college and adding course materials to qualifying expenses), and in phase-out level (to $80,000/$160,000 joint filers). The new makes 40 percent of the credit refundable. Under the new credit, the maximum $2,500 per year would be allowed on $4,000 in qualifying payments (100 percent of the first $2,000 and 25 percent of the next $2,000). Although this credit would be made retroactive to January 1, 2009, it does not automatically apply to a college semester that begins in 2009. Tuition paid late in 2008 for an upcoming 2009 semester qualifies only for a 2008 credit under existing rules. The new law instructs the Treasury Department to study how to better coordinate the education credits with the federal Pell Grant program and the feasibility of requiring students to perform community service for purposes of the education credits.

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The foregoing discussions of the American Recovery & Reinvestment Act are offered for informational use only and do not constitute tax advice.