As I was driving to work yesterday, I heard an interesting
article on NPR’s Morning Edition (link provided below). Now, I am aware that everyone
is probably either very tired of hearing about the Fiscal Cliff or very
stressed! However, as a heads up, here
is another potential victim of the Fiscal Cliff – the American Opportunity
Tax Credit. Although originally set to
expire in December of 2010, the Tax Relief and Job Creation Act of 2010
extended the American Opportunity Tax Credit for an additional two years,
through December 2012. In retrospection,
a very bad date for the expiration of the tax credit because this lumps the American
Opportunity Tax Credit in with all of the other services that will be under scrutiny
for adjustment or elimination as Congress wrestles with the adjustments
necessary to begin cutting the nation’s deficit.
Popular Student Tax Credit Will Expire:
Under the American
Recovery and Reinvestment Act (ARRA), more parents and students qualified for a
tax credit, the American Opportunity Tax Credit, to pay for college expenses. A modification of Hope Credit, the American
Opportunity Tax Credit has been in effect for tax years 2009, 2010 and, under
ARRA, 2011 and 2012. The American Opportunity Tax Credit has
been very popular because it was accessible to a broader range of taxpayers,
including many with higher incomes and those who owe no tax. It also adds
required course materials to the list of qualifying expenses and allows the
credit to be claimed for four post-secondary education years instead of two.
Many of those eligible qualified for the maximum annual credit of $2,500 per
student. Created to help tax payers whose
modified adjusted gross income were $80,000 or less, or $160,000 or less for
married couples filing a joint return, the credit allowed tax payers to
actually receive the credit, whether they owed taxes or not, a feature that
proved a huge benefit to lower income families. The credit was phased out for
taxpayers with incomes above these levels. The income limits for the American
Opportunity Tax Credit were higher than under the existing Hope and Lifetime
Learning Credits.
Since extending this tax cut is estimated to cost $10 billion,
I personally do not think it will be extended again, but I am optimistic and live in hope….. So, what will happen if this tax credit is
not extended? The Hope College Tax
Credit will come back into effect.
Hope Tax Credit
Although
the Hope Tax Credit is better than nothing, it iss a less generous program than
the American
Opportunity Tax Credit. Here is a brief
summary of some differences:
·
It
is not refundable; it can only reduce the
amount of federal taxes you pay.
·
It is worth up to $1,800.
·
100% of the first $1,200
in qualified tuition and related expenses.
·
50% of the next $1,200
in qualified tuition and related expenses.
·
It can only be used for
tuition and required enrollment fees- not required course materials.
·
It can only be used for
the first two years of undergraduate study.
·
It can only be claimed
for two tax years.
·
The credit can be only
be claimed in full for single filers' income of $50,000; partial credit is
allowed up to $60,000. For joint filers, the full credit can be claimed for
incomes up to $100,000; partial credit is allowed up to $120,000.
· You can claim the Hope educational credit even if the
qualified expenses were paid by college loans for students.
·
You can also claim the credit if the student withdrew from school
and these expenses were not refunded.
·
Students are eligible if
-
they have been
enrolled at least half-time in a degree, certificate or otherwise
recognized credentialed program for a semester that started in the tax
year
- not already
taken this education tax credit for two years
- not completed
their first two post-secondary years before the tax year
- been free of a
drug conviction as of the end of the tax year
Link to the NPR news Article from December 11, 2012: http://www.npr.org/2012/12/11/166938090/could-the-opportunity-credit-be-eliminated
Hopefully, after the first
of the year, this IRS website will provide information for the upcoming year. (questions and answers
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