Getting an education is not cheap.  On top of tuition, there are hefty costs for books and supplies.  This can be daunting.  With new book costs for the second semester, as well as tax season in the spring, it might seem too much to bear.  Fortunately, there is a relief to lighten this burden.

            With the billions pouring into the banking and auto industries, it may be comforting to know that college students are getting a bailout too.  The American Opportunity Tax Credit, created as a part of the stimulus bill, is a tax credit of up to $2,500 for tuition, course materials (including textbooks), and related expenses that are not covered by scholarship or grant aid. 

            Let me explain how the amount of credit is figured.  The first $2,000 of fees goes towards the credit at 100%, and any of the next $2,000 at a rate of 25%, thus allowing for a maximum $2,500 tax credit.  If your credit exceeds your tax liability, note that the credit is 40% refundable, with a maximum refund of $1,000.  If, for example, you had fees of $4,000 or more (the max $2,500 of credit) and zero tax liability, you would receive a $1,000 refund.

            The credit is available during the 2009 and 2010 tax years for students in their first four years of college.  Taxpayers with modified adjusted gross incomes of up to $80,000 a year are eligible for the full amount.  The credit is gradually reduced as income exceeds this amount, until it reaches $90,000.  Taxpayers with incomes of $90,000 or more do not qualify for the credit. 

            There is one more very important requirement for eligibility: the documentation to prove your expenses.  This might include transcripts or course descriptions to show periods of enrollment, receipts to show how much you paid for tuition, materials, and fees, and lists of required course materials to show that your spending was necessary. So, make sure to hold on to every receipt; you might need them.

            The American Opportunity Tax Credit is a temporary replacement for the Hope Credit, although President Obama has proposed making it permanent.  The new credit expands on the old one in many ways.  The Hope Credit only counted tuition and related fees, not the cost of books and materials.  It allowed for a maximum credit of $1,800, and only students in their first two years of college were eligible for it.   By raising the maximum gross income for eligibility by $20,000 and allowing partial refunds (opening it to those who owe no tax), the American Opportunity Tax Credit is available to an estimated 4 million people more than the Hope Credit.

            Check out www.textbookaid.org for more information.  Be sure to take advantage of this wonderful opportunity if you can.  It should lighten your financial load and allow you to breathe easier when the new year, with its new demands, rolls around.