Hope and the Lifetime Learning Tax Credits
If you are paying for your or your dependent's college education there are two tax credits available for you: the Hope and the Lifetime Learning Tax Credits Programs.
What's a Tax Credit?
A tax credit is better than a tax deduction. A credit is subtracted directly from your federal income tax on a dollar-for-dollar basis. This saves you more money than a tax deduction, which you subtract from your income before you calculate your tax due and which yields less than dollar-for-dollar savings.
Who Can Claim the Credit?
If someone claims the student as a dependent for tax purposes, that person, not the student, may receive the tax credit, even if the student files a tax return. Otherwise, only the student may receive the credit.
What's the Difference Between the Credits?
The Hope Credit can be claimed for each of the first two years of college or vocational school, for classes that lead to a degree or recognized certificate. The student must be enrolled at least half-time to qualify for the Hope Credit. The Lifetime Learning Tax Credit is available for any post-secondary education program, including graduate and professional school, and unlike The Hope Credit, there is no minimum enrollment requirement. If you qualify for both credits, it will usually be to your advantage to claim the Hope Credit.
What College Costs Qualify?
Qualified expenses include tuition and required fees, minus any grants and scholarships that are received tax-free. Expenses for books and supplies are not included unless they are paid to the institution as a condition of enrollment. The costs of room and board, insurance, transportation and medical fees (including health fees) are not qualified expenses, even if required for enrollment.
What the Hope Tax Credit is Worth
The amount of the credit equals 100% of the first $1,000 of qualified expenses plus 50% of the second $1,000, for a maximum of $1,500. Each year the credit is adjusted according to inflation rate.
Example: You are single, enrolled in the first year at a technical school, and have an adjusted gross income of $20,000. You pay $2,200 in tuition and required fees and receive an $800 tax-free grant, which brings your expenses to $1,400. You would be eligible for The Hope Tax Credit of $1,200 (100% of the first $1,000 plus 50% of $400).
It's Easy to Claim the Credit!
The University mails to students the student IRS Form 1098-T, Tuition Payments Statement, which will report the tuition and related expenses paid for the student.
You may retrieve additional copies of your 1098-T by logging onto https://tra.maximus.com. Click on "First Time Students" and follow the instructions.
The person claiming the credit needs to complete IRS Form 8863(PDF) and attach it to his or her federal tax return. You can call 1-800-829-3676 to order the form.
Other Points to Remember:
- Married couples must file a joint tax return in order to be eligible for either credit.
- Only one credit may be claimed per student per year.
- A student who has been convicted of a felony drug offense is not eligible for The Hope Credit.
- A student who has benefited from a tax free distribution provided by an Education IRA is not eligible for either tax credit.
- A family with more than one student may qualify for more than one credit in a year. A Hope Credit may be claimed for each student who qualifies. However, the Lifetime Learning Tax Credit is claimed on a per taxpayer (family) basis. That means that the Lifetime Learning Tax Credit may be claimed only once per year by a taxpayer, although it may cover more than one student in a family as long as the maximum value of the credit is not exceeded.