The Hope Credit is one of a couple of tax credits for education. It was signed into law under President Clinton as part of the Taxpayer Relief Act of 1997. Since 1997, the amount of the credit has been tweaked, ultimately resulting in the American Opportunity Tax Credit, which was signed into law last year as part of the American Recovery and Reinvestment Act. The American Opportunity Tax Credit is only available for 2009 and 2010. Confused yet? Don’t be. Just think of the American Opportunity Tax Credit as the Hope Credit on steroids.
Here’s what you need to know:
1, In 2008, the maximum amount of the Hope credit was $1,800 (or $3,600 if a student in a Midwestern disaster area). In 2009 and 2010, the credit is worth up to $2,500 – a $700 increase. The credit is calculated as 100% of the first $2,000 of tuition, fees and course materials paid during the taxable year plus 25% of the next $2,000 of tuition, fees and course materials paid during the taxable year.
2, The Hope credit originally applied only to the first two years of college. The expanded American Opportunity Tax Credit can be claimed for expenses for the first four years of post-secondary education.
3, You are eligible for the credit if you pay qualified education expenses of higher education; you pay the education expenses for an eligible student; and the eligible student is either yourself, your spouse, or a dependent for whom you claim an exemption on your tax return.
4, “Qualified education expenses” now includes books (and thank goodness because they’re insanely expensive). Tuition, related fees, and other required course materials also qualify.
5, You cannot claim the credit if your filing status is married filing separately; you can be claimed as a dependent by another person; or if you or your spouse were a nonresident alien for any part of 2009 and the nonresident alien did not elect to be treated as a resident alien for tax purposes.
6, Income requirements have also been increased from 2008. You qualify for the full credit if your modified adjusted gross income is $80,000 or less ($160,000 or less in the case of a joint return) for 2009. Note that phaseouts apply.
7, It’s worth noting upfront that the Hope Credit is a credit, not a deduction. Remember that a tax credit reduces the amount of tax on a dollar for dollar basis – this is a good thing. The Hope Credit was a nonrefundable credit which means that you could reduce your tax to zero but you could not have the “extra” credit refunded to you. Up to 40% of the American Opportunity Credit is refundable which means that even if you owe no tax, you can get some money back (restrictions apply).
8, You can claim the credit even if you used a student loan to pay them (hooray!).
There are other tax credits and education-related deductions available under the Code. Keep in mind that you cannot claim the tuition and fees tax deduction in the same year that you claim the American Opportunity Tax Credit or the lifetime learning credit. You have to choose. The tuition and fees deduction is merely a deduction – which is generally less advantageous than a tax credit – but run the numbers to see which benefits you more.
Both McCain (GOP) and Clinton (Dem) have called for a temporary suspension of the federal gas tax – or a gas tax holiday – for the summer in response to higher gas prices. Obama has so far not endorsed such a move.
There is currently a 18.4 cent federal tax imposed on each gallon of gasoline purchased – in addition to any state taxes. Eliminating the tax would be a relief for taxpayers, according to the candidates. But experts are warning that a tax holiday could actually push prices higher.
It’s true that the hit at the gas tanks would be less if a gas tax holiday were imposed. But what result otherwise?
For one, federal tax revenues would decline, leaving a funding gap of about $10 billion. The revenues from gas taxes are traditionally used for highway projects and repairs. Suspending those projects would put folks out of work for the summer at a time when jobs are hard to come by.
Additionally, the gas tax holiday may increase demand and push up prices. Who wins in that case? Exxon and big oil, not taxpayers. In fact, experts claim that reducing demand is one of the best ways to lower gas prices.
Each of the candidates in support of the gas tax holiday has indicated that lost tax revenues would be taken from other sources – Clinton suggests the money would come from taxing Big Oil (a proposal that has already failed to pass Congress) and McCain has indicated that the revenues would come from the general fund. That same fund has already been raided for tax rebates.
At the end of the day, suspending the gas tax is akin to robbing Peter to pay Paul. Not such a smart policy move. But apparently, according to focus groups in both political parties, it will garner votes… Has it gotten yours?
It’s 2004 all over again. A presidential candidate has released his own tax returns – but not that of his spouse. The GOP cries… ok?
Yep. This week, Sen. John McCain and Republican presidential candidate released his 2007 tax returns – without information about his wife. Cindy McCain filed separately, something that they have continued to do since they were married 27 years ago.
On paper, McCain looks almost modest compared to the other candidates: his total income was a mere $405,409 including about $23,000 in Social Security income, while the Clintons and Obamas reported joint income in the millions. McCain’s income does not include income attributable to his wife, Cindy, heiress to a fortune from her father’s beer distribution company, Hensley and Company where she serves as Chairperson. The web site claims that Hensley is “the third largest Anheuser-Busch wholesaler in the nation (out of nearly 800) with sales that in 2007 exceeded 23 million cases of A-B beers sold and nearly a 60 percent market share.”
McCain is reportedly the 9th most wealthy Senator in Congress; the McCains have assets of at least $36.5 million. This does not include the more than $100 million in assets reportedly owned by Cindy McCain individually.
McCain donated 26% of his income to charity compared to the Clintons’ 15% and the Obamas’ 6%. It is worth making two important notes to this statistic: 1, if all of the McCains’ charitable contributions were donated out of John McCain’s income (we don’t know this to be true), this number would be artificially compressed; and 2, almost all of the charitable donations were made to the John and Cindy McCain Family Foundation.
You’ll recall that John Kerry was heavily criticized in 2004 when his wife, Teresa Heinz Kerry, refused to release her tax return and the information related to her children. One wonders if there will be a similar backlash for McCain.
You can read more about the candidates’ tax returns here.
This week – in the midst of a busy tax season – I wrote a guest post for One Vote Matters. It’s a quick and dirty summary of where the presidential candidates stand on tax issues. You can read the entire post here.
