The Stimulus Package and College Costs – An Update on the American Opportunity Tax Credit

Thursday February 12, 2009

As President Obama’s stimulus package makes its way towards being law, many parents are asking if it includes any help with spiraling college costs. Specifically, many are asking whether the American Opportunity Tax Credit that was talked about during the election is finally coming to pass.

Well, here’s what I can glean from my reading of the most recent version of the bill:

  • It appears the existing Federal Hope Scholarship is being renamed the American Opportunity Tax Credit, as opposed to the introduction of a completely new tax credit.
  • These benefits will apply to expenses paid in 2009 and after.
  • The American Opportunity Tax Credit is equal to 100% of the first $2,000 in expenses and 25% of the next $2,000, for a possible total of $2,500.
  • Students will be eligible for their first four years of college, as opposed to just the first two as currently allowed.
  • Books and courses materials will now be eligible for the credit
  • The adjusted gross income limit to qualify for the credit is raised to $80,000 for single taxpayers ($160,000 for joint).
  • Up to 30% of the credit may now be “refundable.”