As you reflect on this past school year, how would you describe your experience financially? Many students have expressed much concern about the status of tuition, fees, and other expenses. In spite of the global financial recession, most colleges and universities have raised their tuition. What is worse is the reality that financial aid has been difficult for many students to secure. So what are students and families to do?

Tax Credits:The American Opportunity Tax Credit

Parents know that every little bit helps when you are trying to make ends meet. The American Opportunity Tax Credit allows parents to claim $2,500 against college tuition and fees on their 2009 tax return. As it stands, the tax credit is also available for 2010; however, it is likely that the tax credit will be made permanent.

Income Requirements:

In order to take the $2,500 tax credit, a couple filing jointly could earn a maximum of $160,000 in adjusted gross income. Single parents could earn up to $80,000. Incomes up to $180,000 per couple would qualify for a partial credit. If parents file using the alternative minimum tax (AMT), then they could still qualify for the tax credit. Other Requirements: The tax credit applies only to undergraduate students who are going to school at least half time. Parents may claim up to $2,500 of eligible expenses on their 2009 tax return.

Eligible Expenses:

Qualifying expenses include tuition, fees, required student activity fees, and miscellaneous required educational expenses. The credit cannot be claimed against expenses paid by scholarships, grants, employer-paid tuition assistance, Veteran's Education Assistance, federal Pell grants and other tax-free benefits.

Qualifying Institutions:

As long as your child attends an accredited public, private, for-profit or not-for-profit school, then the educational expenses should qualify for the tax credit. Caveats: If you used your Coverdell Education Savings Account (ESA) or a 529 savings plan, then whatever college expenses you paid using these tax-free funds would not be eligible for the tax credit.

Examples:

You cannot claim the credit for expenses already paid for by these other means. For example, if your child has $20,000 in eligible expenses, but also received a $10,000 scholarship and a $3,000 Pell grant, then you could take the full tax credit of $2,500 ($7,000 in eligible educational expenses remains). Parents who have no tax liability, because they have low income can claim eligible expenses for the tax credit and receive up to $1,000 back.

Recommendations:

While this tax credit alone may seem insignificant to some families, to others it is potentially a huge help. Try to organize yourself by setting up folders with important papers related to your college student's tuition bills; paid receipts; financial aid documents; scholarship and grant letters; tuition assistance; tuition remission; and any college or retirement account documentation. When tax time comes, you will be prepared by having the important paperwork at hand.

**TIP** Keep checking your school's financial aid website for information on new scholarships, grants and work-study opportunities.

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Best wishes,

Cheryl Lynne Likins, M.A.
Editor

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