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American Opportunity Tax Credit
The American Opportunity Tax Credit is a bill proposed by President Barack Obama in line with his economic stimulus plans under the American Recovery and Reinvestment Act (ARRA). The proposal is directed to families and students to help them pay for post-secondary education. The proposal gives a $4000 credit to be paid by 100 hours of community service. Currently, the original $4,000 maximum amount has been lowered to $2,500.
The aim of extending the credit was to, "cover two-thirds the cost of tuition at the average public college or university and make community college tuition completely free for most students.
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Details of American Opportunity Tax Credit Bill
The new American Opportunity Tax Credit is a modification of the existing Hope Credit for tax payers. The difference for the newly proposed bill is that more parents and students can avail of the said tax credit. Originally, the American Opportunity Tax Credit was good only for 2years – 2009 and 2010. But President Barack Obama has already proposed to make the bill permanent if passed.
The American Opportunity Tax Credit is not available for the 2008 returns that the taxpayers filed in 2009. The new credit makes the old Hope Credit available to more taxpayers, even those in the higher income brackets and those whose salaries do not make them qualified to pay taxes.
There are qualifying expenses that are covered by the American Opportunity Tax Credit. One of them is the required course materials. The credit can be claimed for four years of post-secondary education. Most of those eligible can qualify for the maximum allowable annual credit of $2,500 per student.
The full credit can be applied by those whose modified adjusted gross income is equal to $80,000 or less for individuals, or $160,000 or less for married couples with a joint return.
The new credit is also partially refundable. This means that if a family doesn't earn enough to pay income taxes, they will get $1,000 back. A family which is required to pay for instance an annual income tax of let’s say $2,000 will qualify for the full $2,500 credit amount. The $2,000 tax payable will be erased and they will still get the amount $500 being a refundable credit.
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When Will the American Opportunity Tax Credit Take Effect?
The American Opportunity Tax Credit Act of 2009 was introduced on January 6, 2009 by Congressman Chaka Fattah. Currently the bill is referred to the House Committee on Ways and Means.
This means that the bill is currently in the first step of the legislative process. Bills that have been introduced must first go to committees wherein the deliberation, investigation, and revision process are conducted before general debate.
The next step would be a Report is made by the Committee regarding its findings pertaining to the proposed bill. After that report by Committee, the House Vote follows. If it incur the majority vote, it will be forwarded to the Senate for the Senate Vote. Again, if the bill is backed by majority in the Senate then it is signed into a bill by the President.
At this point, the proposed American Opportunity Tax Credit Act of 2009 has still a long way to go before it can be finalized and approved.