Understanding Education Tax Benefits and Incentives
Understanding Education Tax Benefits and Incentives
For many parents it is has become very difficult to save for or pay for your child’s college education. Recognizing this, the federal government has stepped up its efforts to provide education tax benefits and incentives. While that is a good thing, understanding the myriad of education tax benefits and incentives out there can be frustrating and confusing to the average person. Lately, it seems every time you turn around there is some additional tax legislation in the area of education. Let’s review the various tax benefits and incentives available.
Hope Credit (American Opportunity Tax Credit)
Provides a tax credit for calendar years 2009 and 2010 of up to ,500 for undergraduates in school more than half time. It can be claimed for all four years of undergraduate study. The first ,000 of tuition costs and related fees (not room and board, however) are entitled to a 100% credit, while the next ,000 of tuition costs (not room and board, however) are entitled to a 25% credit. Once your tuition costs exceed ,000, there is no more Opportunity credit available. The credit is partially refundable. This means if you have no tax liability you are still eligible for a refundable credit of up to ,000. If you are married parents with income of more than 0,000 your credit is phased out. If you are single, the credit begins to phase out when income levels exceed ,000. This credit may be claimed by taxpayers who are subject to the dreaded alternative minimum tax, which is a good thing. You must reduce eligible education costs if you are receiving a scholarship, Pell grant, employer-provided educational assistance (tuition reimbursement) or distributions from 529 Plans.
Michigan Educational Credit Union
Michigan Educational Credit Union
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