A recent Census Bureau report (2007) showed the median annual income of a Bachelor’s degree holder as $46,805. What was the median annual income for a holder of just a high school diploma? $26,894.
We so often focus these days on the cost of getting a higher education. Clearly, as the statistics show, there is the cost of NOT getting a higher education. Nevertheless, the price these days of a college education is beyond an academic matter. For 2010, the average cost for a private four-year college is $26,273 per year. For the average public, a four-year college education would cost $7,020 (source: http://www.collegeboard.com/student/pay/add-it-up/4494.html). These prices are up 5.5% from last year, even during the worst recession since the 1930s.
Fortunately, there will be additional relief for many parents and students under the American Recovery and Reinvestment Act. Within this Act is the American Opportunity Tax Credit, which has renamed the existing Hope Credit. The good news is that unlike the Hope Credit, where the credit could only be claimed for two years of post-secondary education, the new credit covers the first four years. Another significant change for the credit is what constitutes “qualified tuition and qualified expenses.” Course materials are now covered, such as necessary books, supplies and equipment.
The calculation of the credit is rather simple: the credit is 100% of the first $2,000 of qualified expenses, plus 25% of the next $2,000 of qualified expenses. Thus the maximum credit per student is $2,500.
The eligible credit amount will reduce your tax liability, dollar for dollar. If your credit exceeds your total tax liability, 40% of it will be refunded to you.
To qualify for the maximum credit, your modified adjusted gross income cannot exceed $80,000 for single filers ($160,000 for joint filers). Between $80,000 and $90,000 for single filers, the allowable credit is gradually reduced ($160,000 to $180,000 for joint filers). The American Opportunity Tax Credit is available for tax years 2009 and 2010.
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