The HOPE Scholarship and Lifetime Learning Credits
| For current information on HOPE Scholarships and
Lifetime Learning Tax Credits, please visit the Internal
Revenue Service web site: IRS Tax Information
for Students - http://www.irs.gov/individuals/students/index.html
|
The following information is provided for your convenience. The University cannot provide tax advice.
Overview:
Taxpayers can claim one or, in some cases, two tax credits for expenses they pay for postsecondary education for themslves and their dependent children. The Hope Credit 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 time frame and range of educational courses. Education expenses paid for with tax-free grants, scholarships and employer-provided tuition assistance are not eligible for either tax credit. Education expenses paid with loans are eligible for these tax credits.
The following information regarding the Hope Credit, Lifetime Learning Tax Credit, and Tuition and Fees Tax Deduction is provided by the National Association of Student Financial Aid Administrators (NASFAA). This information is intended to provide general guidance only. We therefore advise individuals with questions about tax credits or decutions to seek this information directly from IRS or your financial advisor.
Hope and lifetime learning credits: Beginning in 2007, the amount of Hope or lifetime learning credit is gradually reduced (phased out) if the modified adjusted gross income (MAGI) is between $47, 000 and $57,000 ($94,000 and $114,000 for joint returns). Those with a MAGI of $57,000 or more ($114,000 for joint returns) cannot claim a credit. This is an increase from the 2006 limits of $45,000 and $55,000 ($90,000 and $110,000 for joint returns).
National Association of Student Financial Aid Administrators
What's New for 2007
Income limits increased. The amount of a Hope Scholarship Tax Credit for 2007 is gradually reduced (phased out) for those with modified adjusted gross incomes (MAGI) between $47,000 and $57,000 ($94,000 and $114,000 for joint returns). Those with a MAGI of $57,000 or more ($114,000 for joint returns) cannot claim a Hope credit. This is an increase from the 2006 limits of $45,000 and $55,000 ($90,000 and $110,000 for joint returns).
The Hope Scholarship is a tax credit, not a scholarship. Tax credits are subtracted directly from the tax a family owes, instead of being subtracted from taxable income like a tax deduction. A family must file a federal tax return and owe taxes to get this tax credit. A family cannot get a refund for the Hope credit if it does not pay taxes. A family that owes less tax than the maximum amount of the Hope tax credit for which it is eligible can only take a credit up to the amount of taxes owed.
For the 2007 tax year, a family may claim a tax credit up to $1,650 for each eligible dependent for up to two tax years (100% of the first $1,100 and 50% of the second $1,100 paid for qualified expenses). The Hope credit is available only until each student's first two years of postsecondary education are complete. Gulf Opportunity Zone students may claim up to $3,300 (100% of the first $2,200 and 50% of the second $2,200) for the 2007 tax year.
The exact amount of the Hope credit also depends on a family's income, the amount of qualified tuition and fees paid, and the amount of certain scholarships and allowances subtracted from tuition. The total credit is also based on how many eligible dependents are in the family, rather than a maximum dollar amount for the family as with the Lifetime Learning tax credit.
The Taxpayer: An eligible taxpayer must file a federal tax return and owe taxes to claim the Hope credit. In addition, the taxpayer must claim an eligible student as a dependent on the tax return, unless the credit is for the taxpayer or the taxpayer's spouse. (This means the eligible taxpayer may also be the eligible student.) In 2007, taxpayers cannot claim a Hope credit if their Modified Adjusted Gross Income (MAGI) is $57,000 or more for a single taxpayer, or $114,000 or more for married taxpayers filing a joint return. The Hope credit amount is reduced gradually for families with incomes between $47,000 and $57,000 if single, or $94,000 and $114,000 if married and filing jointly. MAGI limits were increased by $2,000 for single taxpayers by $3,000 for married taxpayers filing jointly in the 2007 tax year.
The Student: An eligible student must be enrolled at least half-time for at least one academic period beginning in 2007 at an eligible program leading to a degree or certificate at an eligible school AND can not have completed the first two years of undergraduate study. You may claim the credit yourself if you are not claimed as a dependent by another taxpayer. (Once again, this means that the eligible student may also be the eligible taxpayer.) Students convicted of a federal or state drug felony before the end of 2007 are not eligible for the Hope credit.
To apply for the credit, taxpayers must report the amount of tuition and fees paid as well as the amount of certain scholarships, grants, and untaxed income used to pay the tuition and fees. Schools are required to send this information by Jan. 31, 2008 in the form of a 1098-T statement to each taxpayer and to the IRS. Taxpayers use this information and their own records about tuition and fees paid when they fill out IRS form 8863 to claim the tax credit. The statement sent by the school will also include contact information for someone at the school who can answer questions about the information on the form. A taxpayer may wish to talk to a tax advisor for help in calculating the amount of the credit.
Generally, the credit is allowed for qualified education expenses paid in 2007 for an academic period that begins in 2007 or during the first three months of 2008 (e.g., paying in December 2007 for an academic period beginning in the first three months of 2008).
A family may claim a Lifetime Learning credit, a Hope credit, and an exclusion from gross income for certain distributions from qualified state tuition programs or education IRAs as long as the same student isn't used as the basis for each credit or exclusion AND the family doesn't exceed the Lifetime Learning maximum per family.
National Association of Student Financial Aid Administrators
What's New for 2007
Income limits increased. The amount of a Lifetime Learning Tax Credit for 2007 is gradually reduced (phased out) for those with modified adjusted gross incomes (MAGI) between $47,000 and $57,000 ($94,000 and $114,000 for joint returns). Those with a MAGI of $57,000 or more ($114,000 for joint returns) cannot claim a Hope credit. This is an increase from the 2006 limits of $45,000 and $55,000 ($90,000 and $110,000 for joint returns).
The Lifetime Learning Credit is a tax credit available to individuals who file a tax return and owe taxes. The amount of the credit is subtracted from the taxes owed, rather than reducing taxable income as with a tax deduction. Individuals who do not pay taxes are not eligible for a Lifetime Learning credit. Taxpayers who owe less tax than the maximum amount of the Lifetime Learning tax credit for which they are eligible can only take a credit up to the amount of taxes owed.
A family may claim a tax credit of up to $2,000 per tax year for the taxpayer, taxpayer's spouse, or any eligible dependents for an unlimited number of tax years ($4,000 for Gulf Opportunity Zone students). If you are claiming a lifetime learning credit for both Gulf Opportunity Zone students and other students, the qualified education expenses taken into account in Part II of the 8863 form cannot exceed $10,000 reduced by the qualified education expenses of the Gulf Opportunity Zone students. The amount of the Lifetime Learning tax credit is 20% of the first $10,000 of qualified educational expenses paid for all eligible students. Therefore, the maximum amount of a Lifetime Learning tax credit is $2,000. The Lifetime Learning credit is available for all years of postsecondary education and for courses to acquire or improve job skills, unlike the Hope credit which is only available for two years.
The actual amount of the credit depends on a family's income, the amount of qualified tuition and fees paid, and the amount of certain scholarships and allowances subtracted from tuition. This credit is family-based (up to $2,000 per tax return or $4,000 for Gulf Opportunity Zone students) rather than based on the number of dependents in a family as with the Hope credit.
The Taxpayer: An eligible taxpayer must file a tax return and owe taxes to claim the credit. The taxpayer must also claim the eligible student as a dependent unless the credit is for the taxpayer or the taxpayer's spouse. (This means the eligible taxpayer may also be the eligible student.) In 2007, those with a Modified Adjusted Gross Income (MAGI) of $57,000 or more (if single), or $114,000 or more (for married taxpayers filing a joint return) cannot claim a Lifetime Learning Credit. MAGI limits were increased by $2,000 for single taxpayers and married taxpayers for the 2007 tax year. The Lifetime Learning Tax Credit amount is reduced gradually for families with incomes between $47,000 and $57,000 if single, or $94,000 and $114,000 if married and filing jointly. Taxpayers that claim the Hope credit or tuition and fees deduction for a student are not eligible to claim the Lifelong Learning credit for the same student.
The Student: An eligible student may be enrolled in an eligible program leading to an undergraduate or graduate degree at an eligible school during the calendar year OR may be enrolled in any course of instruction at an eligible school to acquire/improve the student's job skills during the calendar year. Students may claim the credit themselves if they are not claimed as a dependent by another taxpayer. (Once again, this means that the eligible student may also be the eligible taxpayer.)
To apply for the credit, the taxpayer must report the amount of tuition and fees paid as well as the amount of certain scholarships, grants, and untaxed income used to pay the tuition and fees. The law specifies that schools will send this information by January 31, 2008, in the form of a 1098-T statement to individual taxpayers and to the IRS. Taxpayers will use this information and their own records about tuition and fees paid when they fill out the IRS Form 8863 to claim the tax credit. The statement sent by the school will also include contact information for someone at the school who can answer questions about the information on the form. A taxpayer may wish to talk to a tax advisor for help in calculating the amount of its credit.
Generally, the deduction is allowed for qualified tuition and expenses paid in 2007 in connection with enrollment at an institution of higher education during 2007 or for an academic period beginning in 2007 or in the first three months of 2008. For instance, if you paid $1,500 in December 2007 for qualified tuition for a spring 2007 semester that begins in January 2008, that $1,500 can be used to figure the 2007 deduction.
A family may claim a Lifetime Learning credit, a Hope credit, and an exclusion from gross income for certain distributions from qualified state tuition programs or education IRAs as long as the same student isn't used as the basis for each credit or exclusion AND the family doesn't exceed the Lifetime Learning maximum per family.
National Association of Student Financial Aid Administrators
IRS Form 1098-T: Tuition Payment Statement
Western Kentucky University will send a 1098-T form (Tuition Payment Statement) to students who incurred tuition and fee expenses paid in the calendar year. Taxpayers are not required to include the form with their tax return. To help taxpayers determine qualified expenses eligible for the credit, a summary of charges, payments and refunds made in the calendar year will be provided on the form. This financial information should not be construed as tax advice. It is simply a summary of the University's financial records. The 1098-T form will be mailed to the student's current address during the last week of January. Please allow two (2) weeks for delivery before calling the Billings and Receivables Office about your form. Your form will also be available on TopNet beginning with the last week in January.