Tuesday, June 15, 2010

What is the current Hope Scholarship Tax credit for college students? 529 College Savings Answers

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ha What is the current Hope Scholarship Tax credit for college students?

Looking for some good news about owing taxes? The Hope Scholarship Tax Credit is reserved exclusively for certain taxpayers who find themselves with a balance due come April 15. For families with one or more child attending college, the Hope Scholarship Tax Credit (See IRS Form 8863) offers some welcome relief. Here’s how it works:

First, the government looks at your Adjusted Gross Income (AGI). The AGI must fall at or below the limits to qualify for the credit. In 2008 that limit is $58,000 for single filers and $116,000 for joint filers. (If the AGI falls between $48,000 - $58,000 for a single filer or $96,000-$116,000 for joint filers, the amount of tax credit available under this program will be reduced.) (In 2009 the credit is phased out for those on the higher end of these brackets $65,000 -- $80,000 as a single filer or $130,000 -- $160,000 for married filing jointly filers.) Next, the credit is calculated by taking 100% of the first $1,200 in eligible expenses and 50 % of the next $1,200 in eligible expenses. For many families this results in an $1,800 tax credit, the limit allowed per eligible student. If a family has two students attending college during the tax year, this credit is multiplied by two and so on. The credit is only good for the first two years for each eligible student. For 2009, the Hope Credit has been renamed the American Opportunity Tax Credit as part of the American Recovery and Reinvestment Act of 2009. The credit amount increases to a maximum of $2,500 per year and is available for four years instead of two.

One of the best aspects of the Hope Scholarship Tax Credit is the nature of tax credits. Rather than merely deducting these expenses from your income, a tax credit is deducted directly from the amount of taxes owed, dollar for dollar. In the tax world, you can’t do better than that!

Share your thoughts: Is your family using the Hope? Should the government expand this program? Let us know what you think!

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