Under the American Recovery and Reinvestment Act of 2009, City College students filing their own tax returns can reap rewards from a variety of new deductions and tax credits aimed at offsetting the rising cost of higher education.
“Now the new credit — this American Opportunity Credit — is probably the most generous,” said Shanna Stein, City College professor of accounting. “The new credit has a max credit of $2,500, but the Higher Education Tax Credit has a $4,000 deduction, but that’s different because it is a deduction. A deduction reduces your taxable income. A credit reduces your tax. Credits are good, deductions are good too, but credits are better.”
“I think it is [a good credit] for students,” said full-time City College student Jones Robinson. “Because students can get that money back for expensive books that maybe they thought were overpriced.”
According to the Internal Revenue Service, the new credit modifies the existing Hope credit for tax years 2009 and 2010, making it available to a larger range of taxpayers, including many in higher income brackets and those who owe no tax.
“The Hope credit’s been around a number of years. So student have always known they’ve got a deduction,” Stein said. “You get a form 1098T from the school, and if you’re using a software program, if you put that into the software program, it’ll give you the best deal.”
Renaming the credit wasn’t the only change made by the IRS in 2010.
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“The new one, you can deduct your tuition, any fees associated with school and materials,” Stein said. “So like your books would be included in that. This is the first time they’ve ever given really anything for books. Up until now it’s just been tuition and fees.”
“This is the first year that I got the [1098T] slip,” Robinson said. “It gave me, I’m not sure, I think it was like $200.”
According to the IRS, the full credit is available to individuals, whose gross income is $80,000 or less, or $160,000 or less for married couples filing a joint return. While the credit is not applicable to taxpayers with incomes above these levels, these income limits are higher than under the existing Hope and lifetime earning credits.
Stein said while she cannot provide tax advice and those seeking advice should speak with their tax preparer, students should be aware of some common pitfalls associated with filing that could cause delays in processing.
“The IRS reports that the biggest errors they find on tax returns are math errors,” said Stein. “[Also] there is another credit, the Making Work Pay Credit, which is brand new, and it’s up to $400 per person.”
