Posts tagged ‘American Opportunity Tax Credit’

February 5, 2014

Tuition tax credits for 2013 tax returns

by Grace

If you paid college tuition last year, you may be eligible for one of two tax credits on your 2013 federal tax return.

The American Opportunity Credit was created under the American Recovery and Reinvestment Act of 2009 and extended through 2017 with the passage of the American Taxpayer Relief Act of 2012. It gives a tax credit for four years of undergraduate study of up to $2,500 a year. A portion (40 percent/$1,000) of the credit is refundable, which means the credit in excess of taxes due will be refunded.

The Lifetime Learning Credit is a nonrefundable credit of up to $2,000. Unlike the American Opportunity Credit, which may only be used up to four tax years per student, is not limited in the number of years it can be taken.

There are income limits that determine eligibility for these tax credits.

Who qualifies for the American Opportunity credit?

To take this credit, the taxpayer’s Modified Adjusted Gross Income must be $90,000 or less for single, head of household and qualifying widow(er) filing statuses, $180,000 for married filing jointly. Married filing separate taxpayers cannot take the credit….

Who qualifies for the Lifetime Learning Credit?

The maximum Modified Adjusted Gross Income for a single, head of household or widow(er) taxpayer is $63,000. For married filing jointly, the maximum is $127,000. Married filing separate taxpayers are not allowed the credit.

Qualifying families can file IRS Form 8863 to obtain these credits, using information provided by colleges on Form 1098.

Related:  Tax season reminders about education tax benefits (Cost of College)

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December 3, 2012

Fiscal cliff would hurt education tax benefits (and employment prospects)

by Grace

If no agreement is reached on budget issues by December 31, many educational tax benefits will tumble over the “fiscal cliff”.

According to the New America Foundation’s Ed Money Watch, among the deductions that will expire or revert to lower levels are six that totaled $23 billion in 2012: the American Opportunity Tax Credit (AOTC); the exclusion from taxable income of employer-provided educational assistance; the exemption allowing parents to claim students aged 19-23 as dependents; the student loan interest rate deduction; several health care-related scholarships; and the Coverdell account provision allowing families to invest up to $2,000 annually in to an investment account for a child’s educational expenses with no taxes on earnings or withdrawals.

According to this chart from Ed Money Watch, many of these changes will affect low- and middle-income families.

20121130.FiscalCliffEdChanges1

Recession and higher unemployment
I suspect that many people are “blissfully ignorant” of these and other implications of the upcoming fiscal cliff.  For college students, the loss of these tax breaks is probably less likely to hurt them than would the lower GDP and rising unemployment brought on by higher taxes.

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