The Hope Scholarship and the Lifetime Learning Tax Credit
The Hope Scholarship is a tax credit for eligible first- or second-year undergraduates or their parents; it is for certain educational expenses paid on or after January 1, 1998. For 2009 and 2010 only, the Hope Scholarship tax credit has been modified with expanded eligibility criteria and a larger claimable credit (see the American Opportunity Tax Credit, below).The Lifetime Learning Credit is for eligible students who are beyond their second year of college or their parents; it is for certain educational expenses paid on or after July 1, 1998.
To take advantage of the tax credits, taxpayers must submit IRS form 8863, Education Credits (Hope and Lifetime Learning Credits), with their federal tax returns to the IRS (the form is available inPDF format from the web: www.irs.gov/formspubs). The University's Student Financial Services & Cashier Operations will supply students with Form 1098-T which lists all dollar information relating to the provisions of the Taxpayer Relief Act. Form 1098-T also shows the student's information (name, Social Security number, etc.) that the University provides to the IRS. For more information about the tax credits and these forms, visit the following websites:
Under the American Recovery and Reinvestment Act of 2009,more families will be able to claim a larger tax credit for educational expenses in 2009 and 2010. The new credit, known as the American Opportunity Tax Credit, modifiesthe Hope Scholarship tax credit (see above) for two years. It allowseligible taxpayers to claim up to $2,500 per student per year on their 2009 and 2010 tax returns.
TheAmerican Opportunity Tax Creditalso expands eligibility for the higher education tax credit. Families with incomes up to $80,000 ($160,000 for joint filers) will qualify. In addition, familiesmayclaim the credit for students who are enrolled in their first four years of college (instead of just their first two years). And for the first time, books and course materials will be considered eligible expenses. For more information, see the IRS website.
Highlights of the Economic Growth and Tax Relief Reconciliation Act of 2001
In June 2001 Congress passed the Economic Growth and Tax Relief Reconciliation Act of 2001. This bill contained several changes to the Tax Relief Act of 1997 which provided tax relief to college students and their families. These changes apply to tax years beginning AFTER December 31, 2001. The highlights of the changes are summarized below. For more detailed information, contact your tax advisor or visit the Internal Revenue Service website at www.irs.gov.
Education IRAs. The current contribution limit of $500 was increased to $2000 per year and redefines "qualified education expenses" that may be paid tax-free from an education IRA. Both higher education and elementary/secondary expenses, including the purchase of computer technology, equipment and internet access under certain conditions are now eligible education expenses. For tax years beginning after December 31, 2001.
Qualified Tuition Programs (such as MET). Distributions from a qualified tuition program will be tax-free when used to pay qualified education expenses and permits an annual rollover to a different qualified plan (benefiting the same beneficiary). For tax years beginning after December 31, 2001.
Employer-Provided Educational Assistance (Sec. 127). Extends the exclusion from income of this assistance to graduate education and makes it permanent for both undergraduate and graduate students. For tax years beginning after December 31, 2001.
Student Loan Interest Deduction. Repeals the 5 year (60 month) limit for the use of the student loan interest deduction, making student loan interest deductible for the full term of the qualified loan. Increases the phase-out income limits from $50,000 to $65,000 for single taxpayers and from $100,000 to $130,000 for married taxpayers filing a joint tax return. For interest paid on qualified education loans after December 31, 2001.
Deduction for Qualified Higher Education Expenses. Provides an "above-the-line" tax deduction for qualified higher education expenses of up to $3,000 for tax years 2002 and 2003 and up to $4000 for tax years 2004 and 2005. To qualify, a single taxpayer's adjusted gross income must not exceed $65,000 and married couple's (filing a joint tax return) adjusted gross income (AGI) must not exceed $130,000. Higher AGI taxpayers (up to $80,000 for single filers and $160,00 for married filers) qualify for a deduction of up to $2,000 in 2004 and 2005. For tax years beginning after December 31, 2001.
Health Scholarships. Makes tax-free any awards under the National Health Service Corps Scholarship Program and the F. Edward Hebert Armed Forces Health Professions Scholarship and Financial Assistance Program, except that, as is true with other scholarships and fellowships under Section 117, amounts received for living expenses are taxable. For education awards received after December 31, 2001.