Hope Scholarship and Lifetime Learning Credits
As part of the Taxpayer Relief Act of 1997, several new tax benefits are available to help families meet the cost of postsecondary education. The Hope Scholarship and Lifetime Learning credits allow taxpayers to claim one or, in some cases, two tax credits for postsecondary educational expenses that can directly reduce the amount of federal income tax due. There were additional tax benefits created related to student loan interest deductions and Individual Retirement Accounts (IRA's). S.U.N.Y. is required to report, via Form 1098T, to both students and the Internal Revenue Service those individuals who may be eligible for the Hope Scholarship or Lifetime Learning credits based on enrollment at the campus during the calender year. Listed below is a basic summary of both credits. Provisions That Are Common To Both Credits
- Who is Eligible
You, your spouse, or an eligible dependent can be an eligible student as long as the student was enrolled at the College for at least one academic semester during the year. See further below for academic eligibility requirements specific to the Hope and Lifetime Learning credits.
- Income Limitations
The full value of both credits is available to married taxpayers filing jointly with an adjusted gross income (AGI) of $80,000 or less and to single taxpayers with an AGI of $40,000 or less. The tax credits phase out gradually from those points, and once the AGI exceeds $100,000 (married) or $50,000 (single), taxpayers are no longer eligible for a credit.
- What Expenses Qualify
Eligible educational expenses, net of scholarships, grants and employer-provided educational assistance, are qualified for consideration in determining your credit. Additionally, educational expenses paid through loans are eligible for the credits. For more information on how to determine eligible expenses and the application of aid against those expenses please consult IRS Publication 970.
- Prepaid Expenses
If you pay for qualified expenses for an academic period that begins in the first three months of the following year, you may use the prepaid amount in figuring your credit. For example, if you pay your Spring 2006 expenses in December, 2005, you may use that amount in figuring your 2005 credit. However, you cannot use any amount you paid in 2004 for figuring your credits on your 2005 return.
Provisions That Are Specific To The Hope Scholarship Credit
The Hope Scholarship Credit may only be claimed for two years for each student. Additionally, students must meet the following requirements:
- Be enrolled in one of the first two years of postsecondary education (generally, the freshman and sophomore years of college).
- Be enrolled as a matriculated student in a degree program.
- Be taking at least 6 credits in at least one semester during the year.
- Be free of any felony conviction for possessing or distributing a controlled substance.
The amount of the credit is 100% of the first $1,000 plus 50% of the next $1,000 paid for each student's eligible expenses. Thus, the maximum credit is $1,500 for each eligible student. You will need to fill out IRS Form 8863 in order to claim the credit. Provisions That Are Specific To The Lifetime Learning Credit
You may be able to claim the Lifetime Learning Credit for all eligible students. Unlike the Hope Credit:
- The Lifetime Learning credit is not based on a student's course load. It is allowed for one or more courses. You do not have to be a matriculated student enrolled in a degree program. However, it should be noted that IRS Notice 97-73 states that "any course involving sports, games or hobbies are not eligible for the credit, unless the course is part of the student's degree program". Obviously, only the taxpayer can make the determination whether their coursework fits this criteria.
- The Lifetime Learning credit is not limited to students in the first two years of postsecondary education. Also, there is no limit on the number of years the credit may be claimed for each eligible student.
- The amount you can claim as a Lifetime Learning credit does not vary (increase) based on the number of eligible students qualified.
The amount of the credit is 20% of the first $5,000 paid for all eligible students in the family. Thus, the maximum credit is $1,000 (20% of $5,000). You will need to fill out IRS Form 8863 in order to claim the credit.