College tax credit to expire. What you need to know.
College tax credit will go back to 2008 levels unless Congress decides to extend it. President Obama has renewed his push for it.
What's the official name?
The American Opportunity Tax Credit.
How much is it worth?
Every family with a kid in college gets up to a $2,500 tax credit for each year of college, through 2010. As President Obama said during last week's press conference, "I am calling on Congress to make this tax credit permanent so it’s worth up to $10,000 for four years of college – because we’ve got to make sure that in good times or bad, our families can invest in their children’s future and in the future of our country."
Isn't there already a college tax credit?
Yes. There are about 18 different tax benefits to higher education, actually. If the American Opportunity credit is extended, it would replace the existing Hope credit, expanding it in several ways, according to the White House. The current American Opportunity credit has been funded with stimulus money, which expires at the end of this year.
What's a tax credit, again?
After you calculate your taxes, including all your deductions, the total amount you owe the government is reduced by up to $2,500. If you owe $8,000 to Uncle Sam and qualify for the full credit, you will only owe $5,500. Poor families who pay less than $2,500 a year in taxes can actually make money with the credit: up to $1,000 a year.
Who has benefited?
A Treasury Department analysis says 8.3 million people used the credit last year, for an average of about $1,700 per student.
How is it calculated?
Every penny of the first $2,000 in tuition or textbook costs, plus 25 percent of the next $2,000, according to a report published last week by the Treasury Department. (If tuition and textbooks cost more than $4,000, you get the whole $2,500.)
Which families are eligible?
All lower- and middle-income families with a child in college will be eligible for the full benefit up to $160,000 in annual income ($80,000 for single taxpayers). Then it begins to phase out. Families making $180,000 or more ($90,000 for single taxpayers) are not eligible.
What if I have more kids in college?
The tax credit is per enrolled student, so a family with two college students would be eligible for up to $5,000 per year.
What's the outlook for the credit?
If nothing changes, the current semester will be the last one for which families can take a tax credit (the existing Hope credit would continue). An extension of the credit would have to pass Congress first. The Republican leadership has not addressed the college tax credit since Obama's press conference. There is no mention of education in the GOP's "Pledge to America," which has called for an end to all stimulus programs.