The American Opportunity Tax Credit
U.S. Department of the Treasury
A tax credit enacted as part of the federal economic recovery act in 2009 has significantly increased the number of students getting tax incentives to attend college and the amount they receive, according to a report released Wednesday.
Issued by the Obama administration to help tout the tax credit – which the president wants to make permanent – the report indicates that the measure has helped middle class families the most, but has also made college more affordable for many low-income young people.
The law provides credits of up to $2,500 per student per year (for up to four years), with up to $1,000 available through tax refunds. It replaced the Hope Scholarship credit, which offered smaller incentives for shorter periods of time.
The act increased federal tax incentives for higher education by 90 percent, or $8.7 billion, in fiscal year 2009, the report says. It says the number of students and families receiving federal tax credits for higher education tuition rose from 400,000 in 2008 to 12.5 million in 2009.
The tax credits averaged about $1,700, while refunds averaged about $800.
For single parents earning $20,000 or less and sending one child to college, the refunds averaged $780 for those attending public institutions and $1,000 for those attending private institutions. Because higher-income families have higher tax bills, the value of the tax incentives was higher for them as well, averaging $2,000 for those earning more than $80,000.
The report also provides data about benefits for independent students. Full-time students under age 25, for example, got average tax credits of $1,000.