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Heading back to school? Or, perhaps you have a child or other family member who will hit the books this fall. If so, offsetting some of the costs would be nice, right? Under the American Recovery and Reinvestment Act, more parents and students will qualify for a tax credit, the American Opportunity Credit, to pay for college expenses.

“This credit modifies the existing Hope Credit for tax years 2009 and 2010,” said Karen Connelly, a Denver-based IRS spokeswoman, “making it available to a broader range of taxpayers, including those with higher incomes and those who owe no tax.”

The American Opportunity Credit also adds required course materials to the list of qualifying expenses and allows the credit to be claimed for four post-secondary education years instead of two. Many of those eligible will qualify for the maximum annual credit of $2,500 per student.

Connelly said the full credit is available to individual taxpayers whose modified gross income is $80,000 or less, or $160,000 or less for married couples filing a joint return. The credit is phased out for taxpayers with incomes above these levels.

Some students may not make enough money to be required to file a tax return, but Connelly emphasized that even so, they should consider filing a return to request the credit. Generally, 40 percent of the Hope Credit is now a refundable credit, which means that you can receive up to $1,000 even if you owe no taxes.
Visit IRS.gov for more information on the American Opportunity Credit and other tax benefits for education.