TurboTax / Tax Calculators & Tips / All Tax Guides / College / Bigger, Better College Tax Credit

Bigger, Better College Tax Credit

Updated for Tax Year 2016


OVERVIEW

A key tax credit that helps families pay for college got a major boost in the 2009 stimulus bill. The credit is bigger, covers more years of college, and helps more taxpayers.


The American Opportunity tax credit, previously called the Hope College credit, is valued at $2,500 for 2016, up from $1800 in 2008.

Because a tax credit reduces your tax bill dollar for dollar, this basically means Uncle Sam will give you up to $2,500 per year for each qualifying college student in your family.

And, unlike the old Hope credit, which was available only for a student’s first two years of college, the American Opportunity credit can be claimed for all four years of post-high-school education. You get the maximum credit if you spend at least $4,000 in qualifying expenses, which now include the cost of books as well as tuition and fees.

More credit for lower- and higher-income taxpayers

If you're a lower-income taxpayer and the credit is worth more than your tax bill for the year, up to 40 percent of the credit (as much as $1,000) will be returned to you as a tax refund. The old Hope credit could wipe out your tax bill but never gave you cash back.

There’s also good news for some higher-income taxpayers: The new rules greatly expanded the number of families who qualify for the credit. The old Hope credit was phased out for single taxpayers with Adjusted Gross Income (AGI) of more than $50,000 and it disappeared altogether at $60,000. For couples filing jointly, the credit phased out between $100,000 and $120,000 of AGI. (AGI is basically taxable income before subtracting personal and dependent exemptions and standard or itemized deductions.)

Now the credit starts to decrease at $80,000 for single taxpayers and disappears at $90,000. For married taxpayers filing jointly, those thresholds are now $160,000 and $180,000.

What if you already used the Hope credit for the first two years of a child’s college bills? If your child is a junior or senior in 2016, you can use the American Opportunity credit for these expenses.

Who qualifies?

The other rules for qualifying for the American Opportunity credit are the same as for the Hope credit.

The student must be enrolled at least half-time in a program pursuing an undergraduate degree or other recognized educational credential. You can claim the credit for expenses paid for yourself, your spouse, or a child who is claimed as a dependent on your tax return. If the student is claimed as a dependent on a parent’s tax return, the parent gets the credit, regardless of who actually pays the qualifying expenses.

The changes in the Hope credit do not affect the Lifetime Learning credit (which applies to higher education not covered by the Hope or American Opportunity credit) for education after the first two or four years, or for classes taken (1) less than half-time or (2) not in pursuit of a degree.

The Lifetime Learning credit, which can be claimed for graduate school, for example, or a single post-high-school class, is worth up to $2,000. (The credit is actually 20 percent of the first $10,000 of qualifying costs.) The income phase-out zone is lower than for the new American Opportunity credit. For 2016, the Lifetime Learning credit gradually disappears as AGI rises from $55,000 to $65,000 on single returns and from $110,000 to $130,000 on joint returns.

IRS publication 970 has more information about the American Opportunity, Hope and Lifetime Learning tax credits.

Get every deduction you deserve

TurboTax Deluxe searches more than 350 tax deductions and credits so you get your maximum refund, guaranteed.

For only $54.99$34.99*
Start for Free

Looking for more information?

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.


Security is built into everything we do
Here's how
* Important Offer Details and Disclosures
  • TURBOTAX ONLINE/MOBILE

  • Try for Free/Pay When You File: TurboTax online and mobile pricing is based on your tax situation and varies by product. Free 1040EZ/1040A + Free State offer only available with TurboTax Federal Free Edition; Offer may change or end at any time without notice. Actual prices are determined at the time of print or e-file and are subject to change without notice. Savings and price comparisons based on anticipated price increase expected in March. Special discount offers may not be valid for mobile in-app purchases.
  • QuickBooks Bonus Offer with TurboTax Self-Employed: File your 2016 federal return with TurboTax Self-Employed by 4/18/17 and receive a complimentary subscription to QuickBooks Self-Employed until 4/30/18 at no additional cost. After you file your taxes, you must activate your QuickBooks Self-Employed subscription by 7/15/2017 by logging into QuickBooks Self-Employed via mobile app or at https://selfemployed.intuit.com/login. Once activated, you will have access to QuickBooks Self-Employed until 4/30/2018.
    Offer valid only for new QuickBooks Self-Employed customers.
    • When you use TurboTax Self-Employed to file your 2017 taxes, you will have the option to renew your QuickBooks Self-Employed subscription. If you do not file with TurboTax Self-Employed by 4/30/2018, your QuickBooks Self-Employed subscription will automatically renew on 5/1/2018 for another year at the then-current annual subscription rate. You may cancel your subscription at any time from within the QuickBooks Self-Employed billing section.
  • Pays for itself: In order to pay for the price of TurboTax Self-Employed, you will need at least $600 in deductible business expenses. This calculation is based on the self-employment tax income rate for tax year 2016.
  • Anytime, anywhere: Internet access required; standard message and data rates apply to download and use mobile app.
  • Fastest refund possible: Fastest tax refund with e-file and direct deposit; tax refund time frames will vary.
  • Pay for TurboTax out of your federal refund: $X.XX Refund Processing Service fee applies to this payment method. Prices are subject to change without notice.
  • TurboTax Expert Help, Tax Advice and SmartLook: Included with Deluxe, Premier and Self-Employed (via phone or SmartLook); not included with Federal Free Edition. Feature availability varies by device. State tax advice is free. Service, experience levels, hours of operation and availability vary, and are subject to restriction and change without notice.
  • #1 best-selling tax software: Based on aggregated sales data for all tax year 2015 TurboTax products.
  • Most Popular: TurboTax Deluxe is our most popular product among TurboTax Online users with more complex tax situations.
  • CompleteCheck: Covered under the TurboTax accurate calculations and maximum refund guarantees.
  • TurboTax Self-Employed Expense Finder: Available only in TurboTax Self-Employed. Not available for people with certain types of expenses and tax situations including paying contractors or employees, home office or vehicle actuals, inventory, self employed health insurance or retirement, asset depreciation, sale of property or vehicles, and farm income. Some financial institutions limit the timeframe for which historical transactions may be imported by ExpenseFinder. ExpenseFinder expected late January (late February for mobile app).
  • TURBOTAX CD/DOWNLOAD SOFTWARE

  • TurboTax CD/Download products: Price includes tax preparation and printing of federal tax returns and free federal e-file of up to 5 federal tax returns. Additional fees apply for e-filing state returns. E-file fees do not apply to New York state returns. Savings and price comparison based on anticipated price increase expected in March. Prices subject to change without notice.
  • Fastest refund possible: Fastest tax refund with e-file and direct deposit; tax refund time frames will vary.
  • Pay for TurboTax out of your federal refund: $X.XX Refund Processing Service fee applies to this payment method. Prices are subject to change without notice. This benefit is available with TurboTax Federal products except TurboTax Business.
  • About our TurboTax Product Experts: Customer service and product support vary by time of year.
  • About our credentialed tax experts: Live tax advice via phone is included with Premier and Home & Business; fees apply for Basic and Deluxe customers. State tax advice is free. Service, experience levels, hours of operation and availability vary, and are subject to restriction and change without notice. Not available for TurboTax Business customers.
  • #1 best-selling tax software: Based on aggregated sales data for all tax year 2015 TurboTax products.
  • Data Import: Imports financial data from participating companies. Quicken and QuickBooks import not available with TurboTax installed on a Mac. Imports from Quicken (2015 and higher) and QuickBooks Desktop (2011 and higher); both Windows only. Quicken import not available for TurboTax Business. Quicken products provided by Quicken Inc., Quicken import subject to change.