Students Benefit From American Opportunity Tax Credit

Chantal Bevard, El Vaquero Staff Writer

Many college students are throwing away $2,500 in tax credits and $1,000 in refunds every year all because they are not taking advantage of the American Opportunity Tax Credit.

Under this program students can earn up to $2,500 in tax credit by saving their receipts for qualified educational expenses such as tuition at an eligible educational institution, textbooks, supplies and equipment required for a class.

If a student has little or no tax liability, then the student can earn up to $1,000 in refunds.

President Barack Obama introduced the AOTC originally as part of the American Recovery and Reinvestment Act of 2009 to replace the HOPE Scholarship Tax Credit for the 2009 and 2010 tax years. It was then extended in Dec. 2010 for the 2011 and 2012 tax years under the Tax Relief and Job Creation Act of 2010, but is going to expire at the end of 2012.

Obama proposed in his 2013 budget to extend the AOTC and make it permanent. However, this needs to pass through Congress first. If the tax credit doesn’t become a permanent program, it will return to the HOPE Scholarship Tax Credit in 2013.

Under the HOPE Scholarship Tax Credit program students will only be able to claim tax credit for school expenditures for the first two years at an eligible educational institution, as opposed to the first four years in the AOTC.

The HOPE program also only allows up to $1,800 in tax credit for students, as opposed to the $2,500 allowed by the AOTC. Although the goal for both of the programs is to increase college attendance, the American Opportunity Tax Credit program allows for more tax credits.

Those who oppose the AOTC, such as Stephen Burd, a senior policy analyst with New America’s Education Policy Program, claim that providing financial aid through tax credits is an ineffective way to help students pay for college.

When asked about the tax credit, GCC students Joshua Alcalde and Nick Fittipaldi said they hadn’t heard about it. This was also the case with another GCC student, Amanda Guevara, who admitted that she did not know about the program. 

The Internal Revenue Service describes AOTC as a different educational tax credit program that, “includes expenses for course-related books, supplies and equipment that are not necessarily paid to the educational institution.”

Students who don’t buy their books from the bookstore, but instead from a friend or from a different retailer, can still get a tax credit. Under the AOTC program, students can get tax credit for buying school supplies and equipment as long as it is required for school.

Medical expenses, insurance, room and board, transportation and personal living expenses are not covered as tax credit expenses.

After learning some about the program, Fittipaldi said, “Yes, I think I’ll take advantage of it, but I’ll have to do some more research first.”

“I honestly wouldn’t take advantage of it right now, I’ll need to read more about it,” said Guevara.  “I’m kind of irritated with the government right now and when I hear Obama’s name associated with it, I immediately don’t want to continue the program, but that could be just a prejudgment. I would need to get more information about it.”

A taxpayer can claim an educational tax credit such as the American Opportunity Tax Credit by filing tax Form 8863, Educational Credits, and attaching it to Form 1040 or 1040A.