Recent studies have shown more young adults and older Americans, who are unable to secure employment, are going back to school to boost their competitiveness in the job market. However, tuition is on the rise, and many who don't have sizable savings built up or retirement accounts to help fund their education turn to tax benefits to help ease their financial burden. But it's important to remember that unless the government acts soon, some tax credits are scheduled to expire at the end of 2010.
The American Opportunity Credit, a benefit that was introduced through the economic stimulus package, is one of the more popular credits claimed on consumers' taxes to make college more affordable. Eligible students can claim a credit up to $2,500 this year. More specifically, taxpayers can claim 100 percent of the credit for the first $2,000 in qualified education expenses and 25 percent of another $2,000. In order to receive the full amount of the credit, students must spend at least $4,000 in qualified education expenses. Qualified education expenses include tuition, related fees, books and other related materials required for class.
Forty percent of the tax credit is refundable, meaning consumers who owe no taxes to the federal government can receive an annual payment of up to $1,000 for each eligible student claiming the benefit. Similar to many tax benefits, the tax credit does carry income limitations. In order to claim the full credit, taxpayers must have an adjusted gross income of $80,000 or less or $160,000 for married couples filing joint returns. In addition to income restrictions, certain tax savings plans, such as 529 accounts, cannot be used in conjunction with the tax credit because they already carry special tax benefits.
The credit only applies to students completing their first four years of college, making graduate students ineligible to receive the credit.
Taxpayers who have not yet reached the $4,000 threshold for the credit by the end of 2010 may be able to prepay tuition for the spring semester or purchase textbooks early before the December 31 deadline, according to USA Today.
Parents who are finding it difficult to pay for their children's tuition may want to discuss the topic with their tax preparer
. A number of education-related tax credits, deductions and savings accounts exist of which many Americans may not be aware. Speaking with a professional will help taxpayers explore other options that may be advantageous during filing season.
Liberty Tax Service
provides computerized income tax preparation
and electronic filing. Each tax office
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