What is the Taxpayer Relief Act of 1997?
The Taxpayer Relief Act of 1997 was designed to help families meet the cost of post secondary education by allowing taxpayers to claim credits against their federal income taxes. The credits established by the act are the Hope Credit and the Lifetime Learning Credit. It is the taxpayer’s responsibility to confirm eligibility to use either one of the credits. In order to claim either of the credits, IRS Form 8863 Education Credits (Hope and Lifetime Learning Credits) needs to be completed. These forms and instructions are available from the IRS or on the web at https://www.irs.gov/forms-pubs/about-form-8863. A brief summary of the tax credits is included on this page. For more information, consult your tax advisor, IRS at (800) 829-1040.
What is the Hope Credit?
The Hope Credit is a tax credit equal to all of the first $1,200 of tuition and fees (less scholarships, grants, and tax-free tuition benefits) and half of the next $1,200 of tuition and fees (maximum of $1,800). Special rules for students in Midwestern Disaster Areas double these maximums for those who qualify. This credit is available to parents of dependent students or to students who are not claimed as a dependent on someone’s federal tax return. The Hope Credit can be claimed only for two tax ears and applies only to the first two years of post secondary education. To claim the credit for the 2008 tax year, students must have enrolled at least half-time during at least one of the academic periods and cannot have had a drug felony conviction in the year that credit applies. Only qualified tuition and related expenses paid in 2008 are eligible to be claimed for the 2008 tax year.
What is the Lifetime Learning Credit?
The Lifetime Learning Credit applies to tuition and fees for undergraduate, graduate and continuing education course work. This credit can be claimed for an unlimited number of years. A family can claim on its tax return a credit equal to 20 percent of up to $10,000 of educational expenses, so the maximum benefit is $2,000 each tax year. Eligible education expenses are offset by scholarships, grants and other tax-free tuition benefits. Only qualified tuition and related expenses paid in 2007 are eligible to be claimed for the 2008 tax year, for students in Midwestern disaster areas, this is modified to 40% of qualified expenses paid, with a maximum of $4,000.
What are qualified education expenses?
Generally, qualified education expenses are amounts paid in 2008 for tuition and fees required for the student’s enrollment or attendance at an eligible educational institution. It does not matter whether the expenses were paid in cash, by check, by credit card, or with borrowed funds.
Qualified education expenses do not include amounts paid for:
- Room and board, insurance, medical expenses, (including student health fees), transportation, or other similar, personal, living, or family expenses.
- Course-related books, supplies, equipment, and nonacademic activities, except for fees required to be paid to the institution as a condition of enrollment or attendance.
- Any course or other education involving sports, games or hobbies, or any noncredit course, unless such course or other education is part of the student’s degree program or (for the Lifetime Learning credit only) helps the student to acquire or improve job skills.
Who is eligible for the education tax credits?
There are two tax credits available to help you offset the costs of higher education by reducing the amount of your income tax. They are the Hope Credit and the Lifetime Learning Credit, also referred to as Education Credits. For both, you can claim tax credits if you meet the following three requirements:
You pay qualified education expenses of higher education
• You pay the education expenses for an eligible student
• The eligible student is yourself, your spouse, or a dependent for whom you claim an exemption on your tax return.
For 2008, the income limits increased for both tax credits, and the Hope Credit is gradually reduces (phased out) if your modified adjusted gross income (MAGI) is between $48,000 and $58,000 ($96,000 and $116,000 if you filed a joint return). You cannot claim a credit if your MAGI is $58,000 or more ($116,000 or more if filing jointly).
Taxpayers cannot use both credits for the same student in a single year nor may they combing these credits with tax-free withdrawals from education IRAs. For 2008, if the total qualified education expenses for a student are less than $9,000, it will generally be to your benefit to claim the Hope Credit.
Some differences between the Hope and Lifetime Learning Credits: You can claim the Hope credit based on the same student’s expenses for no more than 2 years; there is no limit on the number of years for which you claim a Lifetime Learning Credits based on the same student’s expenses. Hope Credit is available only until the first two years of post secondary education are completed; Lifetime Learning Credit is available for all years of post secondary education and for courses to acquire or improve job skills. Hope Credit must be enrolled at least half time; Lifetime Learning Credit is available for one or more courses.
Your 1098-T will be mailed by January 31st and can also be accessed electronically on MyHc. The step by step instructions are located here.
What is the 1098-T form?
A college or university that received qualified tuition and related expenses on your behalf is required to fill Form 1098-T with the Internal Revenue Service (IRS). A copy of Form 1098-T must also be furnished to you. The information being reported to the IRS verifies your enrollment with regard to certain eligibility criteria for the Hope Credit, the Lifetime Learning Credit, and the tuition and fees deduction for higher education expenses. The form also provides financial information regarding qualified tuition and related expenses that HC has received on your behalf. The issuance of this form does not imply eligibility to claim the tax credit. Taxpayers should consult their tax advisor or IRS publications to determine eligibility.
Your 1098-T will be mailed by January 31st and can also be accessed electronically on MyHc. The step by step instructions to access the electronic form are located here.
IT IS NOT REQUIRED THAT FORM 1098-T BE ATTACHED TO YOUR TAX FORM.
Where can I get additional information? Questions concerning the Hope and Lifetime Learning tax credits may be directed to your tax advisor or your local IRS office. More detailed information is also available at the following web sites:
