American Opportunity Tax Credit Becomes Permanent

Posted By Eliana Osborn on January 26, 2016 at 10:30 am
American Opportunity Tax Credit Becomes Permanent

Tax season is just beginning, and it’s a time that can be especially stressful for families with one or more students in college. Student loans, financial aid, and tuition can complicate finances for those families. One thing that can help around tax time, though? Tax credits.  There are several different ones, the most popular being the American Opportunity Tax Credit. Authored by Senator Charles Schumer (D-NY) in 2009, the AOTC is worth $2,500 per year for families with students enrolled in college.  And, as part of the 2015 year-end budget bill passed by Congress, this credit is now a permanent part of the tax code.

To qualify for the AOTC, married joint filers must earn less than $180,000 per year, and each student must be enrolled at least half-time in their first degree or credential program.  The credit is different from a tax deduction and cuts the amount of taxes owed straight off the top.

City University of New York estimates that around 100,000 students at the university are currently being helped by the AOTC, just part of the more than $15 billion saved through the credit nationwide in 2015.  Middle-class families not eligible for Pell grants are those most often affected by the AOTC when few discounts are available to them.

However, a December 2015 report from New America found that tax credits may not be doing as much as supporters hoped.  Many college students don’t file income taxes at all. And those at the very bottom of the economic system are getting other aid to cover tuition, making them ineligible for the AOTC.  In fact, the report found that 55% of people filing for the AOTC are enrolled at for-profit schools.

The bottom line? If the AOTC had not been included in the newest budget, its current limits would have expired in 2017, forcing it back to lower dollar levels.  At a time when college costs are only increasing, such a move would have been frustrating for families trying to make ends meet.

Other recent changes to higher education finance include college savings plans, also known as 529s.  What these funds can be spent on has expanded, and penalties for student enrollment changes have disappeared.  If you are thinking ahead to college, 529s can be a great way to save.  If you’ve got kids already enrolled in a degree program, the American Opportunity Tax Credit is where you might be able to find some relief.  At either end of the spectrum, however, tax policies are a small way to lessen the financial burden of higher education.

Eliana Osborn
Eliana Osborn is an associate English professor at Arizona Western College, with degrees from Brigham Young University and Northern Arizona University. She’s published widely in forums such as The New York Times, the Washington Post, the Christian Science Monitor, and the Chronicle of Higher Education.

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