The American Opportunity Tax Credit is a new American tax relief, which was proposed for the first time in the “American Recovery and Reinvestment Act of 2009″ by President Barack Obama. Still, the credit that was now passed is, in fact, an extension of the Hope Scholarship tax credit. It just has a higher maximum and a longer life span.
The new American tax relief extends the earlier maximum sum of $1,800 a year, to a new maximum of $2,500. It is also possible to claim the tax credit for up to 4 years, unlike the previous 2 years. The hope is that increasing the credit will make it possible for more students to obtain a higher education in today’s hard economy.
Only qualifying full-time college students are eligible for the tax credit. Even if it will be made obtainable for 4 years for all applicants who qualify, the real amount you get will differ depending on your income level. Those with incomes over $180,000 are not eligible to obtain it, and opposite to the past credits it is 40% refundable, which means even families who do not pay income taxes will qualify. According to CBPP.org survey the new 40% refund will enable an additional 3,762,000 American college students to take advantage of the new credit.
Since the Hope credit was only available for 2 years, the expectations are that the new extension is likely to give students who are already enrolled more eagerness to stay in school for longer time. What is more, because of the financial crisis, it is getting harder and harder for students to obtain loans, which is leaving many without any chance to attend college. Even if the credit will not pay for a full education, it can provide struggling students with much needed support.