March 29, 2011 | News
Earning Extra ‘Cash’ Credit
While you’re focusing on earning college credits, don’t overlook the “extra credit” the state and federal government offer you as a reward for your higher education.
Uncle Sam offers two tax credits – the American Opportunity Credit and the Lifetime Learning Credit.
You can’t claim both for the same student, but you can claim the American Opportunity Credit for one student and the Lifetime Learning Credit for another in the same year.
The American Opportunity Credit, which is in effect through 2012, allows a tax credit of up to $2,500 for each student, who must be in the first four years of college and studying at least half-time. Your income must be less than $90,000 if filing singly or $180,000 if married filing jointly.
There’s an extra bonus: Up to 40 percent of the credit is refundable.
It can be applied to tuition and fees, but expenses for books, supplies and study equipment aren’t included. And you have to pay at least $4,000 in qualified expenses per student to get the credit.
The Lifetime Learning Credit allows you to claim an annual tax credit of up to a total $2,000 for ALL eligible students, or 20 percent of $10,000 in college bills. At first glance, this many seem the lesser of the two credits, but it comes with fewer strings.
Unlike the American Opportunity Credit, you only have to be enrolled in one course. Graduate students, students who take more than four years to complete a degree, students taking courses to improve job skills and even those who are not pursuing a degree are eligible.
It can be claimed if income is less than $60,000 for single filers or less than $120,000 for married filing jointly.
In addition to tax credits, there are tax deductions that can help you reduce your college costs. You may be able to take a federal deduction of up to $4,000 for qualified tuition and fees if you itemize. This deduction phases out for incomes of $65,000 for single filers and $130,000 for married filing jointly.
Finally, on your federal form, you can deduct student-loan interest of up to $2,500 even if you don’t itemize. There are income limits – less than $75,000 for single filers and less than $159,000 for married filing jointly.
In New York State, you also may quality for a credit of up to $4,000 per eligible student; you’ll have to file Form IT-272. But, if you itemize your deductions on your federal tax return, you may get a greater tax benefit if you claim the college tuition as an itemized deduction on your state tax return. Form IT-272 allows you to determine which option gives you the greater benefit.
You also can deduct up to $5,000 ($10,000 if you are married filing jointly) in contributions to a New York 529 College Savings Program.
The time you spend on filing will be time well spent, and it won’t cost an extra cent.
Alice Murphey, CUNY’s director of financial aid management, has been helping students with tuition issues for more than 30 years.