The Economic Stimulus Plan (the Plan) provides increased tax benefits for individuals incurring post secondary education expenses for themselves, spouses, dependents and others. More specifically, the amount of the Hope Scholarship Credit (“the Hope Credit”) is increased, renamed the American Opportunity Tax Credit (AOTC”) and made partially refundable. The kinds of expenses eligible for this credit have been expanded and the credit is made available to more taxpayers. In addition to these changes, the kinds of educational expenses eligible to be paid from what is commonly referred to as “Section 529 Plans” are also expanded. All of these changes are effective for expenses paid in either 2009 or 2010 for academic periods beginning in 2009 or 2010.
The maximum AOTC is increased to $2500 per eligible student. The maximum Hope Credit was $1500 per student adjusted for inflation to $1800 for 2008. The AOTC applies to a student’s first four years of post secondary education, while the Hope Credit applied only to a student’s first two years of study. The Hope Credit applied to tuition and certain related expenses while the AOTC expands the definition of related expenses to include books and other required course materials. Query whether the cost of skis and boots would qualify as required course materials for my daughter’s 1 credit skiing course at Penn State.
As previously mentioned, the AOTC will be available to more taxpayers since the Adjusted Gross Income (AGI) phase out limits are higher than the Hope Credit phase out limits. The maximum Hope Credit was reduced ratably when a taxpayer’s AGI exceeded $50,000 ($100,000 for joint filers) and completely eliminated when AGI reached $60,000 ($120,000 for joint filers). The maximum AOTC of $2500 per eligible student is reduced ratably when AGI reaches $80,000 ($160,000 for joint filers) and completely eliminated when AGI exceeds $90,000 ($180,000 for joint filers).
The Hope Credit was only available to the extent the taxpayer actually owed tax. Forty percent of the AOTC is refundable unless the taxpayer claiming the credit is a dependent child subject to the “Kiddie Tax”. The AOTC expires after 2010. Without further legislation, the tax benefits for individuals incurring post secondary education expenses will return to the provisions of the Hope Credit.
The Stimulus Plan also expands the kinds of expenses that may be paid tax free from a Qualified Tuition Program (Section 529 Plan) to include computer equipment and technology. This change is also effective for expenses paid in 2009 and 2010. More specifically, computers, peripheral equipment, software and cable related to computer use (not including computer games unless predominately educational) used by the student or his family can be paid from 529 funds.
The maximum AOTC is increased to $2500 per eligible student. The maximum Hope Credit was $1500 per student adjusted for inflation to $1800 for 2008. The AOTC applies to a student’s first four years of post secondary education, while the Hope Credit applied only to a student’s first two years of study. The Hope Credit applied to tuition and certain related expenses while the AOTC expands the definition of related expenses to include books and other required course materials. Query whether the cost of skis and boots would qualify as required course materials for my daughter’s 1 credit skiing course at Penn State.
As previously mentioned, the AOTC will be available to more taxpayers since the Adjusted Gross Income (AGI) phase out limits are higher than the Hope Credit phase out limits. The maximum Hope Credit was reduced ratably when a taxpayer’s AGI exceeded $50,000 ($100,000 for joint filers) and completely eliminated when AGI reached $60,000 ($120,000 for joint filers). The maximum AOTC of $2500 per eligible student is reduced ratably when AGI reaches $80,000 ($160,000 for joint filers) and completely eliminated when AGI exceeds $90,000 ($180,000 for joint filers).
The Hope Credit was only available to the extent the taxpayer actually owed tax. Forty percent of the AOTC is refundable unless the taxpayer claiming the credit is a dependent child subject to the “Kiddie Tax”. The AOTC expires after 2010. Without further legislation, the tax benefits for individuals incurring post secondary education expenses will return to the provisions of the Hope Credit.
The Stimulus Plan also expands the kinds of expenses that may be paid tax free from a Qualified Tuition Program (Section 529 Plan) to include computer equipment and technology. This change is also effective for expenses paid in 2009 and 2010. More specifically, computers, peripheral equipment, software and cable related to computer use (not including computer games unless predominately educational) used by the student or his family can be paid from 529 funds.
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