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Who is Eligible for the Education Tax Credits Comparison of Education Credits Qualified Tuition and Related Expenses University Reporting of Expenses and Aid Received Obtaining Your 1098T Information Education Savings Account (ESA) |
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The Internal Revenue Code provides both tax credits and deductions that may be taken to reduce the federal income tax burden for students or those paying the costs of a students higher education. Briefly, credits directly reduce the amount of income tax owed, while deductions reduce the amount of taxable income upon which income taxes are computed. The HOPE Tax Credit equals 100% of the first $1,100 of tuition and fees paid for higher education and half of the next $1,100 of tuition and fees paid, up to a maximum credit of $1,650 per student. This credit is available for the first two years of a student's post-secondary education. Note that the HOPE Tax Credit is nonrefundable which means that it can reduce the amount of income tax paid to zero but may not be refunded. The LIFETIME Learning Tax Credit applies to tuition and fees for undergraduate, graduate, and continuing education coursework to acquire or improve job skills. Students or the parents of dependent students may claim a credit of up to $2,000 for qualified education expenses paid for all students enrolled in eligible educational institutions, including the UW. There is no limit on the number of years the credit can be claimed for each student. Like the Hope Tax Credit, this credit is nonrefundable. If you are unable to claim the HOPE or LIFETIME Learning Tax Credits, you may still be able to deduct qualified higher education expenses from your income. For those earning $80,000 or less a year ($160,000 if married and filing jointly), you may deduct up to $4,000 per year of qualified tuition and fees paid to the UW. The preceding information and that which follows is for general information only, and does not constitute tax advice. For your convenience we have provided links to Other Useful Web Sites. Because income tax rules are complicated, it may be helpful to consult with the IRS, directly, or a tax advisor. Who Is Eligible For The Education Tax CreditsThe full value of both the Hope Tax and the Lifetime Learning Credit education tax credits is available to married taxpayers filing jointly with a modified adjusted gross income (MAGI) of $114,000 or less and to single taxpayers with a MAGI of $57,000 or less for calendar year 2007. Taxpayers with a low tax liability may not be able to take all the credits, as the credits are nonrefundable, thus limited to taxpayers' total federal income tax obligation. Tax liability is the total amount of tax due; including both the balance due with the filing of the tax return and amounts paid throughout the year such as those from wage withholding and estimated tax payments. Comparison of Education Credits
Hope Tax CreditThe Hope Tax Credit is for undergraduate educational expenses. It applies only to the first two years of post-secondary education, and may be claimed only for two tax years.Students must be enrolled at least half-time during at least one academic period that begins during the tax year and may not have had a drug felony conviction in the year that the credit applies. The Hope Tax Credit allows taxpayers to claim a maximum credit of $1,650 per student for qualified tuition and related expenses less scholarships, grants, and other tax-free tuition benefits PAID the previous calendar year. (100% of the first $1,100 of tuition and fees and 50% of the next $1,100 of tuition and fees). The credit is available to parents of dependent students or to students who are NOT claimed as dependents on their parent's federal tax return. Lifetime Learning CreditThe Lifetime Learning Credit applies to qualified tuition and fees for undergraduate, graduate and continuing education coursework to acquire or improve job skills. Students or the parents of dependent students may claim a credit of up to $2,000 for qualified education expenses paid for all students enrolled in eligible educational institutions, including the UW. There is no limit on the number of years that the credit is available to a student. Like the Hope Tax Credit, this credit is nonrefundable. This credit lets taxpayers claim a maximum credit of $2,000 per taxpayer (20% of up to $10,000 paid in higher education expenses) for payments made in the calendar year. It is available to parents of dependent students or to students who are NOT claimed as dependents on their parents' federal tax return. The maximum credit is $2,000 per family, not per student. Taxpayers CANNOT take both the Hope and the Lifetime Learning Credit in the same year for the same student. Qualified Tuition and Related ExpensesQualified tuition and related expenses are the tuition and fees an individual is required to pay in order to be enrolled at or attend an eligible educational institution such as the University of Washington.Amounts paid for any course or other education involving sports, games, or hobbies are not eligible for the credit, unless the course or other education is part of the student's degree program. Penalty charges and fees associated with room, board, student activities, athletics, insurance, books, equipment, transportation, and similar personal, living, or family expenses are not qualified tuition and related expenses. Qualified expenses are reduced by tax-free grants, scholarships, fellowships, tuition exemptions and employer-provided educational assistance. For questions regarding tuition charges, scholarships or financial aid recorded on the Student Database, email taxquest@u.washington.edu, or call 206-221-2621. University Reporting of Expenses and Aid ReceivedThe University compiles information of qualified expenses charged and grant aid received for all students who were registered during the calendar year. This information is reported to the IRS.If more information on the specific information reported to students is needed, call Student Fiscal Services at (206) 221-2621 during normal business hours, or email at taxquest@u.washington.edu. Obtaining Your 1098T InformationThe University of Washington will mail you an IRS Form 1098T at the end of January. If you are registered for Winter quarter, the form will be mailed to your billing address, otherwise it will be sent to your permanent address.You may also print the information contained on the 1098T from MyUW Personal Services. As you do not submit this form to the IRS, an official form is not necessary to claim the tax credits. Claiming the CreditsUse IRS Form 8863 to determine the amount of the credit. Be sure to read the instructions that accompany the form.If you need further assistance, contact the IRS or a tax advisor. The University CANNOT provide assistance regarding your eligibility and/or the calculation of the credit. Education Savings Account (ESA)Taxpayers can invest up to $2,000 a year for each child under age 18. All earnings are entirely tax free, if they are used to finance a higher education. Please review IRS publication 970 for specific information. IRA WithdrawalThe Internal Revenue Code allows people under the age of 59 1/2 to withdraw money for higher education expenses from a regular IRA or the new Roth IRA without paying a penalty for early distribution. However, tax may be owed on at least part of the amount distributed. These funds may be used for the taxpayer's own higher education expenses, or for those of their spouse, child or grandchild.Deduction for Interest on Education LoansTaxpayers may deduct up to $2,500 in student loan interest paid in the previous tax year. The interest paid on the student loans may be for the taxpayer, the taxpayer's spouse or dependent. You cannot take a student loan deduction if your modified adjusted gross income (MAGI) is $70,000 or more ($140,000 or more if you are married and file a joint return).Tuition and Fees DeductionYou may be able to deduct qualified tuition and related expenses paid during the year for yourself, your spouse, or a dependent. You cannot claim this deduction if your filing status is married filing separately or if another person is entitled to claim an exemption for you as a dependent on his or her tax return. You cannot claim this deduction if your modified adjusted gross income (MAGI) is $80,000 or more ($160,000 or more if you are married and file a joint return), or if you were a nonresident alien for any part of the year and did not elect to be treated as a resident alien for tax purposes. The tuition and fees deduction can reduce the amount of your taxable income by up to $4,000. This deduction is taken as an adjustment to taxable income. This means you can claim this deduction even if you do not itemize deductions on Schedule A (Form 1040). This deduction may be beneficial to taxpayers who cannot take either of the education credits because their income is too high. Please review IRS Publication 970 for specific information. Other Useful Web SitesOther web sites that you might find useful for further information on the tax credits include:
Frequently Asked Questions about the Hope and Lifetime Learning tax credits. |
