The (Tax) Benefits of Higher Education
Now that the tax season has ended, do you know how much education tax credit you accrued in the past year? While many college students do not have to file tax forms separate from those submitted by their parents, the fact that they are in college may help their parents save hundreds of dollars in taxes. The federal government offers a number of tax credits to help alleviate the rising cost of higher education, the two most prominent of which are the Hope Scholarship Tax Credit and the Lifetime Learning Tax Credit.
The Hope Scholarship Tax Credit provides an income tax credit of as much as $2,500 per student based on the first $4,000 of postsecondary tuition, fees, and course materials paid during the school year, according to FinAid.org. The education tax credit is calculated as 100% of the first $2,000 and 25% of the second $2,000. However, these thousands of dollars of potential savings don’t last forever; the tax benefits provided by the Hope Scholarship are restricted to the first four years of postsecondary education. The Lifetime Learning Tax Credit allows tax payers to claim a federal income tax credit of up to $2,000 per taxpayer based on the first $10,000 (20% refundable) of postsecondary tuition and fees paid. Unlike the Hope Scholarship Tax Credit, this education tax benefit has no time limit; a taxpayer can receive it for as long as he or she continues to attend a postsecondary institution.
The American Opportunity Credit, recently passed under the American Recovery and Reinvestment Act (ARRA), has temporarily extended the existing Hope Scholarship Tax Credit to encompass a broader range of taxpayers, including those with higher incomes and those who do not owe any taxes. According to information provided by the Internal Revenue Service, for tax years 2009 and 2010, the maximum credit of $2,500 is being made available to individuals whose modified adjusted gross income is $80,000 or less and to married couples who are filing a joint return and whose modified adjusted gross income is $160,000 or less. Although this tax credit is phased out for those with incomes above these levels, the income limits are higher than those under the original Hope Scholarship Tax Credit.
To learn more about the various education tax benefits, [click here](http://www.irs.gov/newsroom/article/0,,id=213044,00.html). Photo courtesy of [Flickr](http://farm3.static.flickr.com/2568/4105756012_db89e4be50.jpg).
