By David Staudacher, Rio Salado PR Manager
Attention college students! Start saving your school receipts. Under the American Recovery and Reinvestment Act's (ARRA) newly-created American Opportunity Tax Credit, college students and their parents may be eligible for more tax credits.
"The amount of the credit is higher," said Eric Smith, media relations specialist at the Internal Revenue Service. "It now goes up to $2,500 per student. So, that is definitely an increase, and to get that maximum credit of $2,500, you need to spend $4,000 on qualifying expenses. That's mainly tuition and fees, but it can also include books."
The American Opportunity Credit is good for the first four years of school, which is twice as long as the old Hope Credit, which was good for the first two years. There are additional changes that benefit students and parents.
"The income limits have been raised for the American Opportunity Credit," said Smith. "There are some people who didn't qualify under the old law who now qualify under the new law. Also, there's a change for people with lower incomes. That is to say you can get the American Opportunity Credit even if you owe no tax, and that wasn't true with the old Hope Credit.
For someone who doesn’t owe tax, they cannot get the full $2,500. Instead, it is capped at $1,000, which is major improvement considering they couldn’t receive anything under the old law."
According to Smith, students and their parents must file a tax return to get the credit. Pointing out that often it is better for the parent to claim the credit instead of the student.
"It may depend on who’s paying the cost," said Smith. "The key here is that students and parents shouldn’t leave this money lying on the table."
For people who need the money sooner rather than later there is a way to benefit now.
"You still have to claim it when you file your return next year, but the actual benefit or the tax savings, you can get at least some of that now," said Smith. "If you're working and you have tax taken out of your paycheck. You can actually reduce the amount of withholding that you have based on the credit that you expect to be able to claim."
To figure out how much of a credit someone can receive, visit www.irs.gov and use the withholding calculator, which will help determine if you qualify. If someone qualifies, they need to give their employer a new W-4 form and have less tax taken out of their paychecks.
Another new benefit, which is only available for 2009 and 2010, is using money from college savings plans. Money from these plans can be used to pay for computers, internet services, etc. A number of rules and restrictions apply, and contact a plan administrator for more information is highly suggested.
To learn more about Rio Salado College and the financial aid opportunities available, please visit http://www.riosalado.edu.