The Internal Revenue Service has opened a new section of its Web site dedicated to various back-to-school tax breaks for college savings and tuition credits.
The new Tax Benefits for Education section on IRS.gov includes tips for taking advantage of long-standing education deductions and credits, as well as a special section highlighting Section 529 plans and frequently asked questions.
The Web section also features two key changes that will be in effect during 2009 and 2010 that were included in the American Recovery and Reinvestment Act, enacted earlier this year.
One change allows families saving for college to use popular 529 plans to pay for a students computer-related technology needs. Under the other change, more parents and students will be able to use a federal education credit to pay part of the cost of college using the new American opportunity credit.
With many families struggling to afford college, we want every eligible taxpayer to know about their options and take advantage of all the tax breaks they can, said IRS Commissioner Doug Shulman in a statement. 529 plans have become a very attractive way to save for college, and our Web section is designed to help people get information about these plans. In addition, the new American opportunity credit can help many parents and students pay part of the cost of the first four years of college.
Tax-free college savings plans and prepaid tuition programs can be used to buy computer equipment and services for an eligible student during 2009 and 2010. These 529 plans qualified tuition programs authorized under Section 529 of the Tax Code have, in recent years, grown as a way for parents and other family members to save for a childs college education. Though contributions to 529 plans are not deductible, there is also no income limit for contributors.
529 plan distributions are tax-free as long as they are used to pay qualified higher education expenses for a designated beneficiary. Qualified expenses include tuition, required fees, books, supplies, equipment and special needs services. For someone who is at least a half-time student, room and board also qualify.
For 2009 and 2010, the ARRA change adds to this list expenses for computer technology and equipment or Internet access and related services to be used by the student while enrolled at an eligible educational institution. Software designed for sports, games or hobbies does not qualify, unless it is predominantly educational in nature. In general, expenses for computer technology are not qualified expenses for the American opportunity credit, Hope credit, lifetime learning credit or tuition and fees deduction.
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