Up to $1,000 of the credit can be refunded to you if your credit is more than the amount of tax you owe. The amount of the credit can be up to $2,500 per student. In addition, the credit is partially refundable-meaning that you may be able to claim the tax credit and receive a check from the IRS even if you owe no income tax. It offsets the cost of tuition, fees, course-related books, supplies, and equipment for higher education by reducing the amount of income tax you are liable for. The American Opportunity Tax Credit was first made available in the 2009 tax year and is currently set to expire after the 2011 tax year. It's a good idea to figure your taxes multiple ways so you can get the maximum benefit available to you. You may qualify to use more than one of the benefits, but there are some restrictions against this as well. These incentives come in a couple of forms: Tax credits, which directly reduce the amount of tax you owe and Tax deductions, which reduce the amount of income that you pay taxes on. The federal government provides a number of tax incentives that can help defray the cost of higher education. This page serves as an introduction to the changes, but should not be considered legal advice. There have been several changes since 2001 as a result of the Tax Relief Act of 2001. IRS Publication 970, Tax Benefits for Higher Education is a great source for tax information regarding these programs. Enrolled students and graduates should be particularly concerned with Employer Sponsored Tuition programs, Educational Expense Deduction (in lieu of the Lifetime Learning Credits) and the Student Loan Interest deduction. The trend in the late 1990s has been to provide educational financing through tax breaks.
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