Revised 529 & New 2009 2010 College Tax Credit
Obama Economic Stimulus Incentives for Higher Education
Sep 10, 2009
Just in time for back-to-school, the American Recovery and Reinvestment Act (ARRA) provides additional higher educational assistance over the next two years in the form of a new American Opportunity Credit and expanded 529 College Savings Plan. Through the government economic stimulus plan a larger set of families with higher incomes will be able to take advantage of new tax savings.
The IRS is working to quickly release information on tax breaks resulting from the American Recovery and Reinvestment Act. In an IRS press release, IRS Commissioner Doug Shulman states, "With many families struggling to afford college, we want every eligible taxpayer to know about their options and take advantage of all the tax breaks they can.”
The Commissioner continues by adding, “529 plans have become a very attractive way to save for college, and our Web section is designed to help people get information about these plans. In addition, the new American opportunity credit can help many parents and students pay part of the cost of the first four years of college.”
For many college students and their families, these economic stimulus tax savings will greatly help with funding college education in the coming two years, making back-to-school less stressful.
American Opportunity Credit Highlights
A new tax credit as part of the the American Recovery and Reinvestment Act available to families with higher incomes or those who own no taxes. The credit is in effect for tax years 2009 and 2010.
- The full credit is available to individuals whose modified adjusted 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.
- Special rules apply to a student attending college in a Midwestern disaster area. For tax-year 2009, only, taxpayers can choose to claim either a special expanded Hope credit of up to $3,600 for the student or the regular American opportunity credit.
529 College Savings Plan Expansion Highlights
As part of the American Recovery and Reinvestment Act, 529 savings plans are to allow expenses for computer technology and equipment or Internet access and related services to be used by the student while enrolled at an eligible educational institution.
According to the IRS, software designed for sports, games or hobbies does not qualify, unless predominantly educational in nature. Expenses for computer technology are not qualified expenses for the American Opportunity Credit, Hope Credit, Lifetime Learning Credit or tuition and fees deduction.
Tax Breaks Just in Time for Back-to-School
The new American Opportunity Credit and expanded 529 Plan are intended to offer tax breaks for people pursuing higher education in order to defray rising educational expenses. The announcement and program details arrive just in time as students head back-to-school.
Full program details for both the American Opportunity Credit and 529 Plan expansion can be found on the IRS website in the Tax Benefits for Education section.
Sources:
IRS. "Special IRS Web Section Highlights Back-to-School Tax Breaks." (September 10, 2009)
Tax Benefits for Education: Information Center as viewed from irs.gov on September 10, 2009
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