On February 17, 2009 President Barack Obama signed into law the American Recovery and Reinvestment Act of 2009. Under this act, there is a new tax credit called American Opportunity Tax Credit. It is part of an economic stimulus package which contains a historic provision that makes the cost of college textbooks and course materials as well as tuition eligible for tax credits. Provisions for this tax credit are specific to tax years 2009 and 2010 for the first 4 years of post-secondary education.

Hope Tax Credit
Students pursuing an undergraduate degree or other recognized education credential and enrolled at least half-time during at least one academic period that begins during a tax year may be eligible to claim the Hope Scholarship.

The tax credit is available until the first 2 years of postsecondary education is completed at an eligible education institution.

The maximum credit is $1,800 per eligible student or $3,600 if the student is in a Midwestern disaster area. Taxpayers may claim the full credit for each eligible student for whom they paid at least $2,400 of qualified education expenses; however, the credit may be reduced based on modified adjusted gross income.

The student cannot have a felony drug conviction in a year that the credit applies.

Lifetime Learning Credit
This tax credit applies to qualified tuition and fees for undergraduate, graduate, and continuing-education course work. There is no limit to the number of years a taxpayer may claim the credit.

The maximum credit is $2,000 for qualified education expenses per return or $4,000 if student is in a Midwestern disaster area; however, the credit may be reduced based on the taxpayers modified adjusted gross income. Eligible education expenses are offset by scholarships, grants, and other tax-free tuition benefits.

The felony drug conviction does not apply.

American Opportunity Tax Credit
For the 2009 and 2010 tax year, taxpayers may claim up to $2,500 of the cost of tuition and related expenses paid during the taxable year. Under the American Opportunity Tax Credit, taxpayers will receive a tax credit based on one hundred percent (100%) of the first $2,000 of tuition and related expenses (including books) paid during the taxable year and twenty-five percent (25%) of the next $2,000 of tuition and related expenses paid during the taxable year. Forty percent (40%) of the credit would be refundable. That means even student and families who do not earn enough to owe federal income taxes will still qualify for a partial refund check.

The tax credit will be subject to a phase-out for taxpayers with adjusted gross income in excess of $80,000 ($160,000 for married couples filing jointly).

For more information on claiming the American Opportunity Tax Credit, call the IRS Economic Stimulus Line at (866) 234-2942 or contact a tax professional.

If you have questions on claiming the Hope Scholarship or Lifetime Learning tax credits, please refer to IRS Publication 970 on Tax Benefits for Education or contact a tax professional.

You may also contact the IRS at 1-800-829-1040.

Linn-Benton Community College employees cannot provide tax advice.