My daughter's home from college for the holidays but unfortunately the Vassar bursar's office doesn't extend the same break to me when it comes to paying tuition!
However, the American Opportunity Credit (which was introduced as part of the stimulus package) has replaced the previously-offered Hope Credit with higher income limits and larger tax breaks. It also now covers four years of college rather than just the first two. It's available for 2009 and 2010 and might help take the sting out of paying for higher education (almost!).
A tax credit, which reduces your tax bill dollar for dollar, is more valuable than a tax deduction, which merely reduces the amount of your income that is taxed. You may qualify for an American Opportunity Credit of up to $2,500 if you spend at least $4,000 in tuition and qualified expenses (including fees, books and related course materials). If this $2,500 credit exceeds your tax liability a portion of the credit is refundable (up to $1,000 more than your tax bill). In the past, you could qualify for the Hope credit only if your income was less than $58,000 for single taxpayers or $116,000 for married taxpayers filing jointly. But the American Opportunity Credit bumps up those limits to $90,000 for singles and $180,000 for joint filers.
Children under the age of 24 who claim this credit on their own tax return are not allowed the refundable portion if they are subject to "kiddie tax." This credit is also allowed against alternative minimum tax. This credit should provide a bit of relief for those writing a tuition check for next semester.
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