$2,500 Education Tax Credit for College Included in Stimulus Plan

During his first address to Congress, President Obama asked Americans to commit to one year or more of education beyond high school and spoke about a $2,500 tax credit for higher education.

The new law creates a $2,500 higher education tax credit available for the first four years of college. The credit is based on 100% of the first $2,000 of tuition and related expenses (including books) paid during the tax year and 25% of the next $2,000 of tuition and related expenses paid during the tax year, subject to a phase-out for adjusted gross income (AGI) in excess of $80,000 ($160,000 for married couples filing jointly). Forty percent of the credit is refundable, which benefits those who do not owe taxes.
The new credit temporarily replaces the current Hope Scholarship Tax Credit and will be particularly helpful to low-income families. The educational tax credit under the Hope Scholarship Program is nonrefundable, which means that families who don’t owe taxes are not able to benefit from the tax credit. In addition, the current Hope tax credit covers only tuition and fees. The tax break under the new and expanded program covers textbooks and some other non-tuition related expenses.