As part of the new stimulus package signed into law on February 17, 2009 the American Opportunity Tax Credit was created.  This credit is meant to help families pay for college.  Here is what Indiana families with college age children need to know? 

What it will do:
 
The tax credit will be increased to $2500 from $1800.  It will be extended so families can use it for 4 years of college.  Also, more people will qualify because the credit will be expanded to include higher income earners. Under the old law single filers are ineligible if their adjusted gross income is over $60,000 and joint filers are ineligible if their adjusted gross income is over $120,000. Under the new law the limits have been expanded to $90,000 for single filers and $180,000 for joint filers.  The credit is partially refundable. This means that families who do not pay any Federal income tax due to other credits can still receive part of the credit.
 
How it works:
 
It is figured as 100% of eligible expenses up to $2000 plus 25% of expenses above $2000 so a taxpayer with $4000 of eligible expenses could claim the entire credit! Eligible expenses have been expanded to include college tuition and course materials.
 
What to look out for:
 
Scholarships, Grants and some other resources can cause you to lose some or all this valuable tax credit.  There are potentially ways around this.  Most grants and scholarships even full rides do NOT specifically have to cover tuition.  

Normally, colleges will apply the first money they receive toward tuition and fees (qualified expenses); however, if the money can be used for any educational expenses, the student and parents can elect (through tax return filings) how they want the scholarship to be used.