With the passing of the American Recovery and Reinvestment Act of 2009, more students and their parents may qualify for tax credits based on college expenses.
IRS Commissioner Doug Shulman said the new tax credit should help benefit students and their families.
“With many families struggling to afford college, we want every eligible taxpayer to know about their options and take advantage of all the tax breaks they can… The new American opportunity credit can help many parents and students pay part of the cost of the first four years of college,” he said.
Deirdre Harris, IRS spokesperson, said the enhancements for the 2009 and 2010 tax years give options to many college students, such as “People who are just starting college, students enrolled in programs that are structured as five year programs, and graduate students [and] also, your non-traditional students.”
Non-traditional students are those who are enrolled in college for work-related reasons.
“It is important for students and their parents to look at all of the education [options] available to them,” Harris said.
Ron Brown, associate controller in MSU’s business department, said the act allows more people to qualify for education tax credits by increasing the income levels.
“I believe it is intended to help those who are not eligible for financial aid, but still need help with education cost,” he said.
To qualify for the credit, Harris said there must be documented college expenses for an eligible student. If the student files taxes by himself or herself, that student must pay the expenses to qualify. If the student is a dependent, his or her parents must pay the expenses.
“Planning and record-keeping is the key to not miss out on any tax deductions and credits,” Harris said.
Brown said there is a form available to students to documents the expenses that were paid to the university.
Harris said there are a variety of tax credits, deductions and savings plans available.
One type of savings plan is the 529 plan. Shulman said this plan has become a very popular way to save for college. By the act, it has been expanded to include technology expenses.
Harris compared and contrasted tax credits and deductions.
“A tax credit reduces the amount of income tax you may have to pay. A deduction reduces the amount of income that may be taxed,” Harris said.
Harris also said there are different benefits available in some savings plans. Some versions allow the interest to grow tax-free. Other versions do not tax the interest until the money is used. These benefits cannot be used for a deduction or a tax credit.
Mississippi has two 529 plans. One is called the Mississippi Affordable College Savings Program and the other is the Mississippi Prepaid Affordable College Tuition.
Harris said she recommends students visit the the IRS Web site for information to help determine which education incentive fits your specific tax situation.
Brown also said he “advises students to see either an IRS representative or tax advisor” when filing for these credits.
Bobby Hamous, Barnes & Noble store manager at Mississippi State, said this is the first year books have qualified for tax credit in addition to tuition, related fees and required materials. To be sure the expenses are documented, he said he encourages students to keep receipts.
Hamous said he suggests those who qualify for the tax credit to visit textbookaid.org.