A revamped tax credit will now allow students and their parents to receive up to $2,500 this tax season for educational expenses for the first four years of post-secondary education.

The American Opportunity Tax Credit will be available for the 2009 and 2010 tax years and will cover expenses including tuition and enrollment fees, required books, supplies and equipment.

“It’s kind of a down payment, investing in the future of our workforce,” said Mara Lee, spokeswoman for Rep. Doris Matsui.

Lee said the credit is part of the stimulus and is an effort to help students stay in school.

According to the Joint Committee on Tax, the opportunity tax credit will spend $13.9 Billion over 10 years from federal income tax.

The credit replaced the Hope Credit, a $1,800 non-refundable credit, which was available for only the first two years of post-secondary education, said Shara McClain, general manager of Liberty Tax Service.

Expansions to the Hope Credit for the opportunity tax credit increased the total amount by $700 and widened the income eligibility requirements to include families with annual income up to $80,000 ($160,000 if filing jointly).

Because the opportunity tax credit is refundable, it does not simply reduce the amount of taxes owed. Rather, student taxpayers (or parents claiming a dependent student) can receive up to 40 percent ($1,000) of their credit in their tax refund check – that is, if their total credit exceeds the total amount owed in taxes.

If a student’s paycheck withholdings exceed his or her total taxes that year, then the student will receive a refund check to make up for the overlapping amount. If that student files for the AOC then the credit applies toward reducing total taxes. If the opportunity tax credit reduces the total tax to zero dollars and has credits left over, the remaining amount will also be paid to the student or parent as long as it does not exceed 40 percent of the total credit amount.

According to the Internal Revenue Service’s website, students must be enrolled at least half-time and cannot have any felony drug convictions. It is not available to students who are still claimed as a dependent (although parents can file on the student’s behalf), students who are married and filing separately, or to those with a Modified Adjusted Gross Income of more than $90,000.

In order to receive the credit, the student or parent must attach form 8863 to his or her regular tax return and file them together. Forms are available for download online at www.irs.gov, or for pickup from the IRS office at 4330 Watt Ave.

Students may also receive a statement by mail from the university that lists the school’s tuition and fee amounts, but will not contain all of the eligible expenses actually paid. Students should itemize their cost to come up with a more accurate figure.

Receiving financial aid will not disqualify a student from receiving the credit, but the amount received in aid will be subtracted from the student’s total educational expenses. To be eligible, an expense must be out of pocket, or borrowed, such as a student loan.

Although most students will find that they are eligible for this credit, professionals say it is not correct to assume it is their best option.Lizzette Easter, senior tax adviser for H&R Block, said students and parents who are considering to apply should calculate and compare their refund with the credit with their refund using other tuition and fee deductions.

“What is there to think about? I’m doing it,” said Maximilian Fischer, kinesiology major.

Paul Roundtree can be reached at [email protected].