New tax break helps parents save for kids' college

By PHIL MULKINS World Action Line Editor - 10/4/2009


Dear Action Line: I heard there is a new federal law or tax break that helps parents pay for their kids' college expenses. If so, what? — Mrs. O.T., Tulsa.

The Internal Revenue Service offers details on how the American Opportunity Tax Credit, a part of the American Recovery and Reinvestment Act of 2009, helps parents and college students offset college expenses over the next two years.

Qualified tuition and trimmings: This credit, which expands and renames the existing Hope Credit, can be claimed for qualified tuition and related expenses that you pay for higher education in 2009 and 2010. Qualified tuition and related expenses include tuition, related fees, books and other required course materials.

Up to $2,500: The credit is equal to 100 percent of the first $2,000 spent and 25 percent of the next $2,000 spent per student in those two years combined — meaning the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualifying expenses for an eligible student.

Income limitations: The full credit is generally available to eligible taxpayers who make less than $80,000 or $160,000 for married couples filing a joint return. The credit is gradually reduced, however, for taxpayers with incomes above these levels.

Nontaxpayers, too: The law makes 40 percent of the credit "refundable" — meaning even students or their parents who owe no tax can still get up to $1,000 of the credit for each eligible student as cash back.

For first 4: The credit can be claimed for qualified expenses paid for any of the first four years of post-secondary education.

One or t'other: You cannot claim the tuition and fees tax deduction in the same year that you claim the American Opportunity Tax Credit or the Lifetime Learning Credit. You must choose to take the credit or the deduction, whichever is more beneficial for you.

More details: Complete details on the American Opportunity Tax Credit and other key tax provisions of the Recovery Act are available at tulsaworld.com/AOTC.

Other education benefits: Tax Benefits for Education Information Center — tulsaworld.com/TBEIC.

Back-to-school tax breaks: A special IRS Web section highlights back-to-school tax beaks, popular 529 Plans and the new $2,500 college credit at tulsaworld.com/BTSCH.

Publication 970: IRS Publication 970 highlights tax benefits for education at tulsaworld.com/IRSPub970.



Submit Action Line questions by calling 699-8888 or by e-mailing phil.mulkins@TulsaWorld.com or by mailing it to Tulsa World Action Line, P.O. Box 1770, Tulsa OK 74102-1770.




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