The U.S. Department of the Treasury expects that 9.4 million families may receive a tax credit this year as a result of the American Opportunity Tax Credit (AOTC). According to Treasury, the credit will likely amount to $18.2 billion this year.
Households may get a credit up to $2,500 to cover college expenses, which the Treasury Department expects will average $1900 per student. Originally part of the 2009 America Recovery and Reinvestment Act, the Obama Administration extended the tax credit for an additional two years pursuant to the end of the year tax cuts negotiated between the White House and the leadership of the Republican Party.
The AOTC replaced the Hope credit in 2009 and 2010, and according to the Treasury Department will do so again in 2011 and 2012. Additionally, the Treasury department estimates that the full $2,500 credit would cover 80% of tuition and other expenses at an average two-year public institution. Approximately one-third of tuition and fees at a public four-year school would be covered by the full credit.
According to the Treasury Department, the AOTC offers a number of benefits not provided by the Hope Credit. For example, the AOTC offers a larger tax cut for almost all students. The AOTC is applied to a student’s first four years of college versus the first two under the Hope Credit. Lastly, the AOTC can be used to cover the cost of books while the Hope Credit does not.
“America’s prosperity depends on the economic policies we pursue to strengthen our nation’s competitiveness,” stated Treasury Secretary Timothy F. Geithner in remarks made at a town-hall style gathering at the Woodrow Wilson Senior High School in Washington, D.C. Mr. Geithner also noted that American strength and competitiveness would depend on continuing to have the best educated students in the world.