New federal tax credit helps students get more book for their buck

Students planning their classes and budget for next semester will have the opportunity to earn up to $2,500 in rebates for textbooks, fees and tuition paid for in 2009, as part of the Obama administration’s American Opportunity Tax Credit.

The tax credit, offered under the American Recovery and Reinvestment Act of 2009, allows students to receive refunds on $2,000 worth of tuition and course materials — including textbooks, and other supplies. It also allows a 25 percent refund on the next $2,000. The AOTC is an updated version of the Clinton-era Hope Credit that covered $1,800 in tuition and fees, but did not cover course materials.

“This was a provision under the act to help with education costs just like the First-Time Homebuyer Credit was aimed to help with housing costs,” said Victor Omelczenko, an IRS spokesperson.

The AOTC has higher cut-offs than the Hope Credit, so more people qualify than would have before. Single tax payers who make $80,000 dollars or less and married couples who make $160,000 or less are eligible for the full credit.

Although tax credits are usually based on the amount of taxes paid, the AOTC allows eligible students a $1,000 refund even if they don’t pay any taxes.

“The general rule for tax credits is that it can only be used as a subsidy for taxes — if you don’t owe a lot of taxes, you can’t utilize it,” Edward Kleinbard, a professor at the Gould School of Law and the former chief of staff for the congressional Joint Committee on Taxation, said. “Now they have made a refundable credit, which means the government will send you up to $1,000 even if you don’t owe any taxes.”

The credit is also age-specific, offering students older than 24 who support themselves a check for up to $1,000, if they don’t pay more than $2,500 in taxes annually. Younger students will only receive that amount if they pay more than half of their own expenses.

To get the rebate, students must keep a tab of school-related expenses, including saving receipts, to list on their tax returns, according to Kleinbard.

Raymond McDermott, manager of course materials at the Pertusati University Bookstore, said the AOTC, which applies to spending in both 2009 and 2010, might increase sales at the bookstore. While he cannot predict the exact effect AOTC will have on bookstore sales, it could tip the scales for some students struggling to pay for supplies.

“It could be the deciding factor for a student who cannot afford their books,” McDermott said. “It’s one more tool that students and their parents can use to offset their taxes.”

Despite the additional help the tax credit will offer, students said they think it wouldn’t have a huge impact at USC.

“An increase in any tax credit that helps your education is a great thing,” said Hector Rodriguez, a senior majoring in accounting. “[But] even though it’s a large percentage increase from the original, [it] unfortunately reflects a small percentage of what we pay here at USC.”

While the credit is supposed to cover four years of post-secondary education, it will end in December of 2010 unless Congress extends the program.

“I would guess that it would be extended if the money can be found,” Kleinbard said. “The tricky part is that the credit is only available for the 2009 to 2010 even though it’s supposed to cover all four years.”

Students and parents can only claim one tax credit in their tax return, which means other similar tax credits are not available in the same year as a family claims AOTC.

“The basic idea is that it’s better than the Hope Credit,” Kleinbard said. “It would be foolish not to take advantage of this — $2,500 is a lot of money.”