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The American Opportunity Tax Credit (AOTC), introduced in 2009, increased the total tax savings for college students and their parents claiming education credits and tuition deductions from $6.6 billion (in 2009 dollars) in 2008 to $14.7 billion in 2009.
The American Opportunity Tax Credit (AOTC), introduced in 2009, increased the total tax savings for college students and their parents claiming education credits and tuition deductions from $6.6 billion (in 2009 dollars) in 2008 to $14.7 billion in 2009.
In 2009, about 25% of the savings from federal education tax credits and 56% of the tuition tax deduction went to taxpayers with adjusted gross incomes (AGI) of $100,000 or higher.
In 2009, about 25% of the savings from federal education tax credits and 56% of the tuition tax deduction went to taxpayers with adjusted gross incomes (AGI) of $100,000 or higher.
Key Points
- Education tax credits and deductions are tax expenditures. They reduce federal income tax liabilities — and federal tax revenues. Their impact on the federal budget is the same as the impact of direct expenditures.
- The maximum income level for which joint filers were eligible for the AOTC was $180,000 in 2009 — higher than the $160,000 limit for filers claiming the tuition deduction and the $120,000 limit for those claiming the preexisting tax credits.
- Because of the increase in the income limits for education tax credits, the percentage of total tax savings from education credits and deductions going to filers with incomes of $100,000 or higher increased from 18% in 2008 to 26% in 2009.
- Unlike the Hope and Lifetime Learning tax credits in existence since 1998, the AOTC is partially refundable. Taxpayers receive a credit of up to $2,500 for tuition, fees, and course materials. Filers who do not owe taxes can receive a refund of 40% of their credit (up to a maximum of $1,000).
- Because of the refundability of the AOTC, the percentage of total tax savings from education credits and deductions going to filers with an AGI below $25,000 increased from 5% in 2008 to 17% in 2009.
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- The federal government allows a tax deduction for interest paid on student loans. In 2009, 7.2 million taxpayers with taxable returns deducted $6.4 billion in student loan interest, generating over $1 billion in savings.
- Other significant subsidies to students through the tax code include the personal exemption allowed for students ages 19 and over, which saved parents about $3 billion in 2009, and the excludability of tuition assistance from employers, which saved students about $680 million. Taxpayers saved about $1.5 billion in taxes on earmarked savings for education. (Analytical Perspectives, Budget of the U.S. Government, FY 2012, Table 17-1, http://www.whitehouse.gov/sites/
default/files/omb/budget/
1fy2012/assets/spec.pdf)
Key Points
- Education tax credits and deductions are tax expenditures. They reduce federal income tax liabilities — and federal tax revenues. Their impact on the federal budget is the same as the impact of direct expenditures.
- The maximum income level for which joint filers were eligible for the AOTC was $180,000 in 2009 — higher than the $160,000 limit for filers claiming the tuition deduction and the $120,000 limit for those claiming the preexisting tax credits.
- Because of the increase in the income limits for education tax credits, the percentage of total tax savings from education credits and deductions going to filers with incomes of $100,000 or higher increased from 18% in 2008 to 26% in 2009.
- Unlike the Hope and Lifetime Learning tax credits in existence since 1998, the AOTC is partially refundable. Taxpayers receive a credit of up to $2,500 for tuition, fees, and course materials. Filers who do not owe taxes can receive a refund of 40% of their credit (up to a maximum of $1,000).
- Because of the refundability of the AOTC, the percentage of total tax savings from education credits and deductions going to filers with an AGI below $25,000 increased from 5% in 2008 to 17% in 2009.
Also Important (View)
- The federal government allows a tax deduction for interest paid on student loans. In 2009, 7.2 million taxpayers with taxable returns deducted $6.4 billion in student loan interest, generating over $1 billion in savings.
- Other significant subsidies to students through the tax code include the personal exemption allowed for students ages 19 and over, which saved parents about $3 billion in 2009, and the excludability of tuition assistance from employers, which saved students about $680 million. Taxpayers saved about $1.5 billion in taxes on earmarked savings for education. (Analytical Perspectives, Budget of the U.S. Government, FY 2012, Table 17-1, http://www.whitehouse.gov/sites/
default/files/omb/budget/
1fy2012/assets/spec.pdf)
Key Points
- The introduction of the American Opportunity Tax Credit (AOTC) increased the subsidies taxpayers received through education tax credits from about $5.3 billion in 2008 to about $14 billion in 2009. The number of filers benefiting from education tax credits more than doubled, from 5.2 million in 2008 to 10.6 million in 2009.
- In 2009, 10.6 million parents and students benefited from education tax credits, while the federal tuition and fee tax deduction reduced tax liabilities for 1.4 million taxpayers by a total of about $561 million, based on $2.7 billion of tuition expenses.
- Unlike most other forms of student aid, tax credits and deductions cover only tuition and fees, not room and board. As of 2009, education tax credits take into account expenses for course materials in addition to tuition and fees.
- Before 2009, education tax credits could not exceed the amount of tax owed. The American Recovery and Reinvestment Act of 2009 (ARRA) expanded the tax credits into the American Opportunity Credit, which is partially refundable for filers with no tax liability.
Key Points
- The introduction of the American Opportunity Tax Credit (AOTC) increased the subsidies taxpayers received through education tax credits from about $5.3 billion in 2008 to about $14 billion in 2009. The number of filers benefiting from education tax credits more than doubled, from 5.2 million in 2008 to 10.6 million in 2009.
- In 2009, 10.6 million parents and students benefited from education tax credits, while the federal tuition and fee tax deduction reduced tax liabilities for 1.4 million taxpayers by a total of about $561 million, based on $2.7 billion of tuition expenses.
- Unlike most other forms of student aid, tax credits and deductions cover only tuition and fees, not room and board. As of 2009, education tax credits take into account expenses for course materials in addition to tuition and fees.
- Before 2009, education tax credits could not exceed the amount of tax owed. The American Recovery and Reinvestment Act of 2009 (ARRA) expanded the tax credits into the American Opportunity Credit, which is partially refundable for filers with no tax liability.
Figure 12A: Distribution of Total Tax Savings from Education Tax Credits and Tuition Deductions by Adjusted Gross Income (AGI), 2008 and 2009 (and Average Tax Savings per Recipient)
| Adjusted Gross Income (AGI): | Percentage of Savings 2009 ($1,221) | Average Tax Savings in 2009 | Percentage of Savings 2008 ($833) | Average Tax Savings in 2008 | |
|---|---|---|---|---|---|
| Less than $25,000 | 17% | $1,028 | 5% | $416 | |
| $25,000-$49,999 | 20% | $866 | 28% | $888 | |
| $50,000-$74,999 | 18% | $1,164 | 23% | $885 | |
| $75,000-$99,999 | 18% | $1,572 | 26% | $1,127 | |
| $100,000-$180,000 | 26% | $1,773 | 18% | $646 |
NOTE: Refundable tax credits claimed on all returns are included. For nonrefundable credits and for deductions, only amounts claimed on taxable income tax returns are included. The value of tax deductions is estimated based on applicable marginal tax rates. Available data do not allow separation of independent students from parents of dependent students claiming tax credits and deductions. The tax deduction was first implemented for the 2002 tax year. Percentages may not sum to 100 because of rounding.
SOURCES: Internal Revenue Service, Statistics of Income, http://www.irs.gov/taxstats/indtaxstats/article/0,,id=96981,00.html, Tables 1.3, 1.4, 3.3 (1998–2009); calculations by the authors.
Figure 12B: Total Education Tax Credits and Tuition Deductions in Constant 2009 Dollars, 1998 to 2009 (and Average Tax Savings per Recipient)
| Year: | Total Credits (in Billions) | Average Savings per Tax Credit Recipient | Total Deductions (in Billions) | Average Savings per Tuition Deduction Recipient | Total Savings (in Billions) |
|---|---|---|---|---|---|
| 2009 | 14.1 | $1,329 | 0.6 | $401 | 14.7 |
| 2008 | 5.2 | $1,006 | 1.4 | $477 | 6.6 |
| 2007 | 5.3 | $994 | 1.5 | $488 | 6.8 |
| 2006 | 5.5 | $1,010 | 1.5 | $513 | 7.0 |
| 2005 | 5.0 | $985 | 1.8 | $535 | 6.8 |
| 2004 | 5.0 | $981 | 1.9 | $530 | 6.9 |
| 2003 | 5.2 | $966 | 1.3 | $459 | 6.5 |
| 2002 | 4.7 | $944 | 1.3 | $474 | 6.0 |
| 2001 | 5.2 | $869 | 5.2 | ||
| 2000 | 5.2 | $890 | 5.2 | ||
| 1999 | 5.3 | $972 | 5.3 | ||
| 1998 | 3.9 | $973 | 3.9 |
NOTE: Refundable tax credits claimed on all returns are included. For nonrefundable credits and for deductions, only amounts claimed on taxable income tax returns are included. The value of tax deductions is estimated based on applicable marginal tax rates. Available data do not allow separation of independent students from parents of dependent students claiming tax credits and deductions. The tax deduction was first implemented for the 2002 tax year. Percentages may not sum to 100 because of rounding.
SOURCES: Internal Revenue Service, Statistics of Income, http://www.irs.gov/taxstats/indtaxstats/article/0,,id=96981,00.html, Tables 1.3, 1.4, 3.3 (1998–2009); calculations by the authors.
Figure 12C: Percentage Distribution of Education Tax Credits, by Adjusted Gross Income (AGI), 2009 (and Average Tax Savings Per Recipient)
| AGI Level | Distribution | Average Tax Savings per Recipient | Total Tax Savings |
|---|---|---|---|
| AGI Less than $25,000 | 17% | $1053 | $2461562 |
| $25,000-$49,999 | 21% | $898 | $2905502 |
| $50,000-$74,999 | 18% | $1311 | $2534432 |
| $75,000-$99,999 | 19% | $1713 | $2624214 |
| $100,000-$180,000 | 25% | $2283 | $3564741 |
| TOTAL | 100% | $1329 | $14090451 |
NOTE: Only tax credits and deductions claimed on taxable income tax returns are included. The value of tax deductions is estimated based on applicable marginal tax rates. Available data do not allow separation of independent students from parents of dependent students claiming tax credits and deductions. Percentages may not sum to 100 because of rounding.
SOURCE: Individual Income Tax Returns, All Returns: Tax Liability, Tax Credits, and Tax Payments, by Size of Adjusted Gross Income, Tax Year 2009
Figure 12D: Percentage Distribution of Savings from Tuition Tax Deduction, by Adjusted Gross Income (AGI), 2009 (and Average Tax Savings per Recipient)
| AGI Level | Distribution | Average Tax Savings per Recipient | Total Tax Savings |
|---|---|---|---|
| AGI Less than $25,000 | 3% | $206 | $15031654 |
| $25,000-$49,999 | 9% | $276 | $48873932 |
| $50,000-$74,999 | 20% | $335 | $114551028 |
| $75,000-$99,999 | 12% | $375 | $67712002 |
| $100,000-$160,000 | 56% | $501 | $314605482 |
| TOTAL | 100% | $401 | $560774099 |
NOTE: Only tax credits and deductions claimed on taxable income tax returns are included. The value of tax deductions is estimated based on applicable marginal tax rates. Available data do not allow separation of independent students from parents of dependent students claiming tax credits and deductions. Percentages may not sum to 100 because of rounding.
SOURCE: Individual Income Tax Returns, All Returns: Tax Liability, Tax Credits, and Tax Payments, by Size of Adjusted Gross Income, Tax Year 2009.
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