This is topic Tax & Fianancial aid question in forum Books, Films, Food and Culture at Hatrack River Forum.

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Posted by Lyrhawn (Member # 7039) on :
So I just filed my taxes, and my brother called me to tell me all about all the money he's getting back this year, and how much his fiancee is getting back, and then asked me what I was getting back so he could as subtly as possible gloat about the fact that he's getting more.

And he told me how much money he got back from the American Opportunity Tax Credit (this year's version of the Hope tax credit for education expenses). Now, in year's past, I've never claimed the Hope Tax credit because it was only for your first two years of college, and I was well past my first two years of college by the time I was old enough to claim myself as not a dependent, thus making it moot.

However, this year the tax credit applies to the first four, and not two, years of college. Now, I'd always assumed that when they say your "first two or four years of college" they mean specifically, your first 4 or 8 semesters. I'm a senior, but I graduated high school in 2002, I've been going to university off and on since then, and I have a couple dud semesters that didn't advance me along but I was technically still in school. Thus, enrollment wise, I've been at my school for more than four years, but credit wise, I'm in my fourth year. I suppose this question doesn't generally need to be answered, because normal people try to finish school before they've been out of high school for eight years already, and don't putz along the way in the first place.

But my question is thus, am I technically in my fourth year, and thus eligible for said tax credit? As of now, I didn't take the tax credit, and since I made so little, and since the tax rules are wonky this year and my withholding only took a tiny amount of money out, I used my tuition expenses as a deduction to lower my AGI, and took the EITC and Making Work Pay tax credits to boost my return. The American Opportunity Tax credit is a partially refundable, $2,500 tax credit, from what I can tell, so if I'm eligible, I should get about a thousand of that. But I don't know if I'm eligible or not, since I don't know what they mean, technically, by me being in my fourth year. My brother figured since he was a junior, he was good, and he took the credit. I'm starting to think that it could be construed to mean 4th year as determined by credits, the same way that your FAFSA asks you what your grade level is. Does any one know for sure?

Now, with the standard deduction, and my exemption of 1, my tax liability drops to zero, so I don't need the tuition deduction for that purpose. But I was wondering if having my adjusted gross income lower would have positive effects on my financial aid for next year. I made about $7,600 last year, and with the deductions I have, my AGI is $2,955. Does that make any difference as far as the financial aid people are concerned? Or, if eligible, would it make more sense to tax the education tax credit as it is refundable, raise my AGI back up, and use the money accordingly?

I have no idea how the EFC is calculated and how they apportion aid, as far as that goes.

All help is appreciated, and no, I don't feel particularly shy about posting all my tax info on here. Who are any of you going to tell?
Posted by rivka (Member # 4859) on :
Originally posted by Lyrhawn:
But I was wondering if having my adjusted gross income lower would have positive effects on my financial aid for next year.

Up to a point, yes. But your AGI is so low, and I assume you're filing a 1040EZ, that you should qualify for auto-zero EFC anyway, in either case.

The tax credit can be claimed for up to four years. They don't care what year you are; in theory you can be in grad school. There's just a max of 4 years claiming this credit to a customer.

Oh, and there are other possible tax benefits you may be eligible for.
Posted by Lyrhawn (Member # 7039) on :
So, I would be eligible then? I think my mom claimed the credit in my name twice when I was younger, so with the modified rules for this year and next, I'd qualify?

Also, about where does the auto-zero EFC kick in (or does that vary by school)? If I switched from the tuition deduction to the tax credit, my AGI would bump up to about $6,955. Is that still low enough?
Posted by Lyrhawn (Member # 7039) on :
Thanks. I've already taken the student loan interest deduction.

But they make you choose between the tuition deduction and the education tax credit, which is what is putting me in the current bind of trying to see which one would be better for me overall, not just for tax purposes, but for financial aid purposes as well. If this decreases the amount of Pell Grants I might end up with, it may not be worth it.
Posted by rivka (Member # 4859) on :
Ah, I just remembered that you don't qualify for auto-zero -- you have no dependents.

But you do qualify for simplified needs.
Posted by rivka (Member # 4859) on :
EFC calculator
Posted by Stephan (Member # 7549) on :
I'm in grad school and took the credit. My tuition was $2700 for 6 credits, and I received a $2100 tax credit. Awesome, but not done yet. Maryland has an additional tax credit for teachers going back for their master's degrees. I received a $1500 state tax credit.

Do the math....

It looks like I got paid $900 to go back to school.

[ February 04, 2010, 02:50 PM: Message edited by: Stephan ]
Posted by rivka (Member # 4859) on :
I love when the system works well. [Smile]
Posted by Lyrhawn (Member # 7039) on :
I don't know what formula my school uses to determine the EFC, but if it's the federal model, I might be fine for financial aid if I take the credit. I think my best option might be to bring my tax information with me and stop by the financial aid office to ask them specifically how their formulas differ from those of the Department of Education, if at all. Hopefully if I can give them hard numbers on my AGI, they could at least give me an idea as to how it works. I really can't fathom that $7K would even generate any EFC, but I've given up trying to apply realistic logic to how financial aid works. Worst case scenario, I have to file an amended tax return and an amended FAFSA, but that shouldn't be too hard, I've done both before.

Thanks for the help rivka, I was hoping you'd see this thread and stop in. That cleared a couple things up for me.
Posted by rivka (Member # 4859) on :
For Pell purposes, it MUST be the federal model.

Also, IIRC, you school is a public, yes? In which case they almost certainly use FM for all their FA.

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