American Opportunity Tax Credit
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To help pay expenses for higher education, the Act replaces the Hope Scholarship Credit, which is not refundable, with a partially refundable American Opportunity Tax Credit (AOTC). The AOTC is worth up to $2,500 a year, increased from $1,800.
Coverage has been extended from two years to four years of schooling for 2009 and 2010, which will enable some students currently enrolled to complete their education. Students must attend school at least half-time.
The AOTC starts to phase out for tax filers with adjusted gross income in excess of $80,000 ($160,000 for married couples filing jointly). Individuals with income above $90,000 and couples with income above $180,000 will not get the credit.
Unlike the Hope Scholarship Credit, 40 percent of the AOTC (up to $1,000 per year for 2009 and 2010) is refundable and thus available to households with little or no tax liability. Tax filers will receive the credit on their tax returns the year after they pay the expenses.