Great news for students from the IRS; the tax credits for education recently expanded.
The revisions benefit both sides, those who don’t owe taxes and those who make more and didn’t qualify last year. Students may qualify for a $1,000 refundable cash credit even if they don’t owe the IRS.
The American Opportunity Credit is basically a revised version of The Hope Credit. The American Recovery and Reinvestment Act modified the credit in order to expand educational opportunities during this troubling economical time. It’s a temporary option that opens doors for those who wish to be retrained or educated through the first four years of college, rather than the original two years.
The maximum credit is $2,500. However, this credit is exceptional because it is refundable. For example, if you have children, your taxable income will be low and often you won’t owe the IRS. The tax refund check is the excess money you paid all year.
The more dependants you have, the less your taxable income will be. This credit goes beyond the usual because instead of simply decreasing your taxable income, you receive a check for the remaining portion, up to $1,000. This is a bonus incentive that helps single parents acquire affordable education.
The Lifetime Learning Credit is beneficial to graduate students or displaced workers who are not specifically trying to earn a degree. The Hope and Opportunity Credits are limited in the number of years you can claim them, but the learning credit isn’t. This is why it’s perfect for job skill improvement, self-employed and undergraduate courses. And still it credits graduate and professional degree courses. This credit ranges between $2,000-$4,000.
The tuition and fees deduction is a deduction for qualified tuition and college costs incurred by the student or parent. Married couples are disqualified, as well as students whose parents are eligible to claim them, even if the parent does not claim them. This credit expands to new college costs previously excluded such as tuition and fees, travel costs, room and board, books and supplies. Computers remain excluded. This deduction is good if your income is too high to qualify for the credit.
You can’t claim all of the credits, even if you meet the qualifications. They are designed to meet student’s individual needs. This decision should be made with confidence, prior to filing your tax return. The IRS website has a withholding calculator you can use to see which credits you qualify for.
Financial Aid students should remember that once their returns are filed, they can complete new FAFSAs. Lastly, if you are living with your parents, they may qualify for higher tax credits than if you file alone. Be sure to check with them to see if they plan to claim you.
You can file your taxes via E-file free at IRS.gov. Students.gov is an informative website as well.
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