Take advantage of college tax credit for middle class families

Your federal income taxes are due by April 15th. However, there’s still time to offset some of the costs of higher education by reducing the amount of your income tax by up to $2500 with an American Opportunity Tax Credit.

According to an article, “Tax breaks for college costs,” published in the Rockford Register Star this past Valentine’s Day, you may reduce the amount of your income tax if you paid for a college student’s educational expenses in 2015 and you and the student meet certain eligibility requirements.

A tax credit reduces the amount of income tax you may have to pay. Unlike a tax deduction, which reduces the amount of income subject to tax, a tax credit directly reduces any tax that is owed or increases any refund that is due.

The student must have carried at least one half the normal full-time workload for his or her course of study and you pay the educational expenses for the eligible student, who is either yourself, your spouse or a dependent for whom you claim an exemption on your tax return.

Also, the student must not have completed the first four years of postsecondary education (generally, the freshman through senior years of college) for any one academic period during the year and be enrolled in a program leading to a degree, certificate or other recognized credential.

To qualify for the full credit, your adjusted gross income must be less than $80,000 if you are single or filing as the head of household, or less than $160,000 if you are married filing jointly.

The tax credit begins to phase out as your income increases, disappearing entirely at $90,000 for singles and heads of households and for couples filing jointly earning more than $180,000.

Money spent on tuition, fees and books, but not room and board, counts toward the credit. The credit is determined by calculating 100 percent of the first $2000 you pay for eligible expenses, plus 25 percent of the next $2000 paid, totaling $2500 for each of the first four years of eligibility.

You can claim the credit by filing IRS Form 8863 with your 1040 Form using the 2015 Instructions for Form 8863 on the IRS website. Also, read IRS Publication 970, “Tax Benefits for Education” to find other benefits for which you may be entitled.

My oldest granddaughter has attended Rock Valley College full time for two years, 2014 and 2015 and my younger granddaughter will attend college this fall.

My daughter filed Form 8863 with her 2015, 1040 Tax return and received a $2100 refund with the American Opportunity Tax Credit, versus paying an additional $100 dollars in taxes without the credit.

My daughter also filed a 1040X amended return for 2014, since my granddaughter had also attended RVC full time the previous year and the existing tax credit was not utilized.

You generally have three years after filing the original federal tax return (or three years after the date you filed your return, if you received an extension) to file an amended return if you missed a tax break or need to make other changes.

You must file a separate Form 1040X for each year you are amending and mail each separately. Turbo tax or other electronically calculated returns can’t be used to file an amended return directly with the IRS.

It will take up to 8 to 12 weeks for my daughter to receive an additional refund of over $2200 for her 2014 tax return – for a total refund of over $4400 for the two years at RVC using the tax credit.

For the 2016 tax returns, both granddaughters could receive up to a $2500 tax credit for their college tuitions, fees and books for a total of $5000 dollars because both will be full time, eligible students.

The American Opportunity Tax Credit may be used in addition to any 529 Savings Plans, which allow tax free earnings if withdrawals are used for qualified college expenses, including tuition, fees, room and board, and printers, computers and education related software.

Before completing your tax return this year, check if the American Opportunity Tax Credit applies to your student’s eligibility and have your refunds help with the increasing costs of higher education.