The Tax Attic with Jerry Coon — February 11, 2010

Words on tax refunds

Jerry Coon, Enrolled Agent


The tax season is well under way. As is usually the case, each tax season takes on a flavor of its’ own. Some tax seasons are known as early filing tax seasons. Everyone’s refund seems to be large and they want it today. We find that some seasons have so many changes that affect their tax returns; it seems that people put off filing their returns and the season becomes known as a late filing season. Neither of those scenarios applies to this year.

Allow me to make an observation about this year. Even though it was projected that refunds would be smaller or non-existent this year; so far that doesn’t seem to be totally the case. Some taxpayers are getting smaller refunds than they expected but others are being pleasantly surprised by the size of their refunds. It’s been an orderly tax season with the Internal Revenue Service and the State of Michigan efficiently processing the returns as they are submitted. No big technical snafus have taken place.

As always, there are one or two legislative changes put into place that effect many returns. This year, we are seeing many taxpayers taking advantage of the return of the Residential Energy Credit and the upgrade of the Hope Education Tuition Tax Credit (HOTC) to the new American Opportunity Tax Credit (AOTC). Much has been written about the Residential Energy Credit but I have not read much about the American Opportunity Tax Credit. It’s really a misnomer to say the AOTC upgraded the HETC. It totally replaced the credit. Since so many taxpayers claim the tuition tax credit on their returns, I’m going to hit the high points and the differences between this year and the past years. 

First, the Hope Credit resulted in a maximum of $1,800 credit, none of which was refundable. The American Opportunity Tax Credit can result in a maximum credit of $2,500. 40 percent of the credit, up to $1,000 is refundable. This is a huge change. Many taxpayers paying tuition in past years zeroed out their tax liability without using the full $1,800 of credit. Now, they will at least get 40 percent as a refundable amount.

Second, the HOTC credit was based only on tuition and fees paid. The AOTC expands the definition of eligible expenses to include not only tuition and fees but also we can include required course materials in the calculation. Course materials can include books and supplies and also a computer. This is also huge. Let me re-state. Student’s books and, if a computer is required, can also be included.  We as tax preparers are not limited to the tuition paid on the college statement. This is such a radical change that we have to concentrate on asking about books and a computer. Those expenses don’t show up on the college’s statement. I’m not sure exactly what year the HOTC was instituted, but books and a computer were never allowed to enter into the equation. Now these books and a computer can result in a much larger credit. 

For taxpayers using a tax professional, don’t forget to mention those expenses to your preparer. F or taxpayers using commercial software such as TurboTax, don’t forget to include those expenses on the appropriate worksheet. For the ten people in West Michigan completing your return by hand, the form to use is Form 8863. 

Third, the AOTC can apply to the first four years of post-secondary education. The HOTC only applied to the first two years of post-secondary education. This is another huge change. It only takes $4,000 of tuition, fees, books, and a computer to get $2,500 of credit with $1,000 of the $2,500 refundable. Under the old rules, in the third and all following years, taxpayers would qualify only for the Lifetime Learning Credit.  $4,000 of qualifying expenses for a Lifetime Learning Credit results in a credit of $800, none of which is refundable. Let’s see: $800 of non-refundable old credit or $2,500 of new credit of which $1,000 is refundable.

Fourth, the other change made increased the amount of income that can be earned without losing the credit. The HOTC phased out $58,000 for a single taxpayer and $116,000 on a joint return. The AOTC phases out at $90,000 for singles and $180,000 for joint filers. This allows many, many more taxpayers to take advantage of this credit.  These changes came too late for Deb and Jerry Coon since both of our daughters, Kimberly and Stephanie, have graduated from college, but for those taxpayers who do qualify for the American Opportunity Tax Credit, it is a welcome credit.  This is Jerry Coon signing off.

Jerry Coon is an Enrolled Agent. 
He owns Action Tax Service on Northland Dr. in Rockford.
Contact Jerry at his website:

About Squire News 6221 Articles
The Squire has been Rockford’s free weekly newspaper since 1871. Our loyal readership includes over fifteen thousand homes in the Rockford area, including the affluent Lakes area of Lake Bella Vista, Bostwick Lake and Silver Lake; Belmont, Blythefield, as well as Algoma, Courtland, Cannon and Plainfield Townships. The Squire is distributed through the U.S. Post Office every Thursday. We also deliver to in-town businesses and homes with paper carriers and news stands in our grocery stores and over thirty local shops.