There’s a saying that advancing one’s education pays off sooner or later. Thanks to 2009′s stimulus act, getting a bachelors degree pays before you even graduate. It made it possible to get a tax refund for going to college, and that refund can be thousands of dollars. Included in this are the online college courses so many students are participating in.
This new program was dubbed the American Opportunity Credit. It’s an expansion of what was previously the Hope Credit. If one attended any kind of college this last year, whether it’s brick and mortar or online, one can even apply for it this April. If you need more information about free scholarships and grants, look on the internet.
According to the IRS, the differences between the Hope and Opportunity credits are several-fold. The Opportunity Credit entitles more students (or their parents) over the next two years to get a tax credit to pay for not only tuition and fees, but also college-related expenses such as required course materials. It also includes many more people with higher incomes and those who owe no tax, which the Hope didn’t.
The credit is now open to single filers with a modified adjusted gross income is $80,000 or less. For married couples filing a joint return, the ceiling is now $160,000 or less. Previously, the limits were $48,000 and $96,000 respectively. This does not mean you can immediately apply it to your next tuition bill. You have to wait to file for it with your next income tax filing. This means if you started college this September, you’ll have to wait until April 2010 to claim it.
How the actual credit works is that one is entitled to a 100% refund for the first $2,000 in tuition, fees and/or costs related to going for a degree. After that first $2,000, one is entitled to an additional 25% refunded up to the next $2,000. So, for example, if the costs are $6,000; one gets a 100% refund for the first $2000, 25% of the next $2,000 (or $500) and nothing for the last $2,000. $2,000 plus $500 and $0 equals a $2,500 credit when filing the following April.
If there’s one thing the IRS is serious about though, it’s to be careful with what one claims as “cost related”. For example, just buying a computer does not make it worthy of a refund. On the other hand, if the school requires a new laptop for its curriculum, it can be claimed. There is an abundance of information about distance learning degrees on the web.
Another interesting thing that’s different from the Hope is the Opportunity could turn into a refund. This could happen even if the filer is will get a tax refund without the credit. The difference is the cap is a bit tighter. The maximum refund is only $1,000 instead of the full $2,500.
It should be noted the Opportunity credit is good for only the first two years. For those planning their third year or more, one has to apply for a Lifetime Learning credit. Also, while the Opportunity credit is currently only good for the 2009 and 2010 returns, there is talk it might be extended further. For more information, check with a tax expert, a financial aid officer or go to the IRS website and look up American Opportunity Credit.
In addition to convenience, those who take an online college course often do so for financial reasons. Exploring this tax credit, which comes after an outlay of funds, as well as online grant, scholarship, and loan options is a good way to maximize and facilitate your learning.
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