Online Students and Tax Credits

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Posted on February 3rd, 2011

There is no doubt that online college can be pretty costly, but fortunately come tax time you may be able to get some of that money back if you qualify. This is because the American Opportunity Credit tax allows undergraduate students (those who attend traditional or online schools) to earn up to $2,500 in tax credits on the first $4,000 they spend on educational expenses. The American Opportunity Credit, which recently replaced the Hope Credit and the Lifetime Learning Credit, considers "educational expenses" as any of the following: tuition, textbooks and extra course materials and supplies such as special equipment like lab supplies or computer software—the type of supplies you'll need will vary upon your major and classes you take. But if you can prove that you needed that particular supplies for school, such as a lab top for example, you should be in pretty good shape and be able to claim the credit. With this credit, even if your tax liability is zero, up to 40 percent of the credit is refundable.

But to qualify for this tax credit, you have to make an adjusted gross income no more than $80,000 if you are a single filer and no more than $160,000 if you are a joint filer. If you make beyond this range, you will not be eligible to claim this credit. But in all honesty if you're making that kind of dough chances are you can afford to pay for college with ease. If you are dependent, then naturally these gross income figures will apply to your parents'. If your parents earn within the designated salary range and helped pay for your education, then they can claim this credit. However, if someone else helps pay for your college expenses but they cannot claim you as a dependent—such as a boss or friend—they cannot claim the American Opportunity Credit.

It's important to repeat however that this credit is only offered to undergraduate students—more specifically only to students during their first four years of college. So fifth year seniors—you do not qualify. Those who wish to claim this credit must also be enrolled as a full-time student. This means you should be registered for at least 12 credits/hours (or about 4 classes).

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