What are the Tax Education Credits that I'm hearing about?
In August of 1997, President Clinton signed the Taxpayer Relief Act of 1997 (TRA97) which provides a number of tax benefits to help students and their families pay for higher education. Two of the benefits include the Hope Scholarship and the Lifetime Learning Credit.
How does that affect me?
You or your parents may be eligible to claim a credit against your federal income taxes. That means you may not have to pay as much in federal income tax.
Can you explain the difference between the Hope Scholarship and Lifetime Learning Credits?
The Hope Scholarship provides a tax credit of up to $2,500 per student for qualified tuition and related expenses for the first two years of post secondary enrollment. A student must be enrolled at least half-time (6 credits) in a degree or certificate program. The Hope credit is available for expenses paid on or after January 1, 1998 for academic periods beginning on or after that date. The taxpayer is eligible for a tax credit equal to 100% of the first $2,000 paid for qualified tuition and fees (less grant aid) and 25% of the next $2,000 for a total tax credit of $2,500 maximum.
The Lifetime Learning Credit provides a tax credit of up to $2,000 per family for qualified tuition and related expenses. The tax credit eligibility covers a wider range of students. A student needs only be enrolled in a degree or certificate program or taking undergraduate or graduate classes to acquire or improve job skills. The Lifetime Learning Credit is available for expenses paid on or after July 1, 1998 for academic periods beginning on or after that date. The taxpayer is eligible for a tax credit equal to 20% of the first $5,000 paid for qualified tuition and fees (less grant aid) for a total of $1,000.
Claiming the Credits:
The Hope Credit is a per-student credit. If more than one student in a family meets the eligibility requirements, the parents are allowed to claim a credit of $2,500 for 2009 and 2010 for each eligible student. The Lifetime Learning Credit is a per-taxpayer credit. Regardless of the number of students in the family, the maximum Lifetime Learning Credit that may be claimed on a tax return is $2,000.
The two credits are mutually exclusive for the same student in the same tax year. If a parent pays tuition for a student and claims the Hope Credit against that tuition payment for that year, the parent may not claim a Lifetime Learning Credit against any part of the same tuition payment for that same year, even if the payment is more than the amount the credit uses as its tuition threshold. If a parent pays tuition for two students in the same year, one of whom is eligible for the Hope Credit and one of whom is not, the taxpayer may claim the Hope Credit for the payment made on behalf of the one eligible student and the Lifetime Learning Credit for the payment made on behalf of the other eligible student, all on the same tax return.
Will the College tell me the specific dollar amount of qualified tuition and fees?
Yes. Box 2 on the 1098-T form will display the qualified tuition and fees and box 5 will display the grants and scholarships you received for the calendar year.
What is the College going to send me?
By January 31, the College is required to send a tax form (1098-T) to all students, excluding international students. The College is also required to report this same information to the IRS by February 28. This form will include: