The American Opportunity Tax Credit could fatten your tax refund check this year, if you're eligible.
The college credit pays back to students, dollar-for-dollar, the first $2,000 of their out-of-pocket undergraduate expenses. It also refunds 25 percent of the next $2,000 -- for a total possible benefit of $2,500 a year.
But to get it, you have to ask.
According to a recent U.S. Treasury report, most of New York's taxpayers didn't take the generous write-off, leaving behind up to $1.08 billion in unclaimed credits. That includes $89.3 million for Western New York families.
"It's one of the largest tax breaks that the middle class can get," said Sen. Charles E. Schumer, D-N.Y., who sponored the tax credit and authored its two-year extension of the credit. He added, "Of all the 'hidden' breaks, this is probably the one that means the most to middle class families."
But with just 62 percent of qualified Americans taking advantage of it, the college tuition credit has landed on the list of commonly overlooked deductions and credits. And by not knowing about or using these deductions, taxpayers are shortchanging themselves.
The full credit is available to individuals who make less than $80,000 or couples making less than $160,000. It refunds expenses such as tuition and books for the first four years of post-secondary education. Students need to be enrolled at least part-time and pursuing an undergraduate degree or other recognized educational credential, said Dianne Besunder, an IRS spokeswoman in New York City.
"Even those who owe no tax can get up to $1,000 of the credit for each eligible student," she added.
There is a general lack of public knowledge of the tax law, which leaves many people unaware of the deductions they're entitled, resulting in overpayment of taxes, said Esther Gulyas, president of EG Tax, an Amherst-based tax preparation company with 27 offices in the region.
"Every area of your life has a deduction, but missed deductions are so prevalent," Gulyas said. "And that's because the tax code is vast and complicated, sometimes even for professionals."
Add to that the frequent introduction and expiration of write-offs, issued to temporarily resuscitate a specific sector of the economy, and the process can be dizzying, she said.
"The tax laws change so frequently by the time you learn of something, it's gone," Gulyas said. For example, the tuition credit -- significantly larger than the previous college credit --was created in 2009 as part of the federal stimulus package and was set to expire in 2010. But it was extended in December, through Schumer's efforts, for another two years.
Schumer's office has now embarked on an aggressive campaign to bring more awareness to the American Opportunity Tax Credit.
"We're doing everything we can; we're like Paul Revere, telling people, 'Save money on your taxes,'" Schumer said. He added that, if you were eligible last year and didn't take the credit, you can file an amended return, Form 1040X.
Besunder said that same form can be used to add other missed deductions and credits, as well as to change income and correct filing status. New York requires filing a state amended return (Forms IT 150X or IT 201X) within 90 days of an amended federal return.
>It's your money
Accountants and tax preparers see the same commonly overlooked deductions, with people leaving money with the government that should come back to them:
*Out-of-pocket charity costs: Out-of-pocket costs accrued while volunteering at your neighborhood soup kitchen or other charities are deductible, including mileage, which was 14 cents a mile for 2010; public transportation costs; and lodging expenses. Save your receipts and keep a mileage log.
The Savers Credit: This nonrefundable tax credit returns up to half of salary contributions made by low-income workers to their 401(k) plans, as well as other qualified retirement plans. Maximum refund is $1,000. Income limit for single filers is $27,750; for married, filing jointly, it's $55,500. To claim the credit use Form 8880, Credit for Qualified Retirement Savings Contributions.
*Job search expenses: Hunting for a new gig can be costly, but you may be able to deduct some of those expenses from your tax return, like moving and travel expenses, an employment agency fee or resume prep and printing costs. To qualify, it cannot be your first job and it must be in your current line of work.
*Child and Dependent Care Credit: If you work or go to school, you may be able to deduct care expenses for a dependent child, spouse or other individual who lives with you more than half the year. It also applies to summer day camps. The credit can be up to 35 percent of your qualifying expenses, depending upon your income, and for 2010 up to $3,000 of expenses in a year for one qualifying individual or $6,000 for two or more qualifying individuals will be figured into the credit. Read Publication 926, Household Employer's Tax Guide, for more eligibility requirements.
*While most people who are eligible for the Earned Income Tax Credit do claim it, Besunder said, four out of five taxpayers don't take advantage of the sizable credit for lower income residents. For tax year 2009, 1.6 million New York taxpayers claimed the EITC credit and received a total of $3.52 billion, she said.
Gulyas said taxpayers should be mindful of missed credits and deductions from the state. She said taxpayers sometimes focus more on their federal returns, and in cases of where there's zero tax liability, the state return is skipped altogether.
"The thinking is the state is not as important as the federal," she said. But when you don't file, there are tax benefits you're passing up, and even when you owe nothing, the state's tax credits will produce a return. For example, the Empire State Child Tax Credit, will give eligible taxpayers $100 to $330 per child; New York College Tuition Credit or Itemized Deduction is up to $400; and the Volunteer Firefighters and Ambulance Workers credit is $200.
"If you don't file a state return, that money just stays with the state," Gulyas said.
To avoid overpaying your taxes and ensure you're claiming all the tax breaks you're entitled to, Besunder said, taxpayers can get familiar and stay abreast of the tax law and its changes by visiting IRS.gov's "Individual" section for tips and latest information. When choosing a tax preparer, select a qualified person by getting referrals and ask for credentials, she added.
"Most preparers do a wonderful job but be leery of someone who promises you a large return without knowing anything about your situation."
Tax preparation software with a lengthy interview process can help you find deductions, but, Besunder said, make sure you're using the latest version of the software.