Congress passed on August 5, 1997, the
Taxpayer Relief of Act of 1997, and the Balanced Budget Act of 1997, which
contain the Hope Scholarship Credit and the Lifetime Learning Credit.
Tax Credits and Deductions
You can claim tax credits or, in some cases, deductions, for expenses that you
pay for postsecondary education for yourself, your spouse, or your dependent
children. The Hope tax credit, introduced in 1998, is available on a per-student
basis for the first two years of postsecondary education, whereas the Lifetime
Learning credit is available on a tax-return basis and covers a broader
timeframe and range of educational courses. A new "above-the-line" deduction,
which is available for course-work beginning January 1, 2002, provides some
relief to families whose income is too high to qualify for the Hope and Lifetime
Learning tax credits. Education expenses paid for with tax-free grants,
scholarship, and employer-provided tuition assistance are not eligible for the
credits or for the above-the-line deduction. However, education expenses paid
for with loans are eligible for these benefits.
Hope Tax Credit
A tax credit equal to all of the first $1,000 of tuition and fees (less
scholarship, grants, and tax-free tuition benefits) and half of the next $1,000
of tuition and fees, for a maximum of $1,500 per student, is available to
parents of dependent students or to students who are not claimed as a dependents
on their parents' tax return. Beginning in 2002, the credit will be indexed for
inflation. Refer to IRS Form 8863 for the maximum credit amounts for your 2002
tax return and beyond. The Hope credit can be claimed only for two tax years and
applies only to the first two years of postsecondary education. Students must be
enrolled at least half-time in a program that leads to a degree, certificate, or
other educational credentials during at least one academic period that begins
during the tax year. Students cannot have had a drug felony conviction in a year
in which the credit applies.
Income Limitations On the Education Tax Credits
The full value of the education tax credits is available to married taxpayers
filing jointly with an adjusted gross income (AGI) of $80,000 or less and to
single taxpayers with and AGI of $40,000 or less. The tax credits phase out
gradually. When married taxpayers' AGI exceeds $100,000 or a single taxpayers'
AGI exceeds $50,000, they are not eligible for these credits. After tax year
2001, the income limits will be adjusted for inflation. For year 2002 tax return
and beyond, you'll need to refer to IRS Form 8863 to find the correct AGI
limits.
New Above-The-Line Deduction
If you cannot claim either the Hope or Lifetime Learning tax credit, you may
still be able to deduct qualified higher education expenses from your taxable
income. Self-supporting students, including those who borrow to pay tuition, are
eligible to take this deduction, without filing a long Form 1040.This new tax
deduction also provides relief to families whose AGI is too high to qualify for
the Hope or Lifetime Learning tax credits. Single filers with AGI of up to
$65,000 ($130,000 for joint filers) can deduct $3,000 per year in 2002 and 2003,
and $4,000 per year in 2004 and 2005. Note: you do not need to itemize to claim
the new deduction, which expires in 2005.
The Taxpayers Relief Act requires Midlands Technical College to file a form
1098-T, Tuition Payment Statement, with the IRS and to provide a copy to each
student. It is recommended that all taxpayers consult with their tax advisor, as
each individual's tax situation is different.
For further information contact the IRS website at:
IRS Publication 970, Tax Benefits for Higher Education, and Publication 520,
Scholarships and Fellowships, are available from the IRS Web site at
www.irs.gov
or by calling 1-800-TAXFORM.
Information for this document was taken from a brochure published by the
National Association of College and University's Business Officers (NACUBO).
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