How Students Can Benefit From Income Tax Breaks

photo credit: romana klee

photo credit: romana klee

If you or someone you know attended college, you might be able to take advantage of certain “scholarships” which grant you a reduction in your income tax, dollar for dollar. Called the Hope Scholarship Credit and Lifetime Learning Credit, these scholarships provide former students with federal tax breaks. Unlike tax deductions which reduce the income amount subject to tax, the tax credit directly reduces the tax you have to pay.

The Hope Scholarship Credit

The Hope Scholarship Credit provides a tax credit of 100% for the first $2000 in qualified expenses and 25% for the second $2000. Any family member that is enrolled at least half time for the first 4 four tax years is eligible to apply for this tax credit. If you, your child or your spouse meets the requirements, you can apply. If there are multiple students in a family that qualify for the Hope Scholarship Credit, then a multiple number of credits may be claimed.

For married taxpayers with adjusted gross income from $100,000 to $120,000 (married filing joint) or single filers with an income of $50,000 to $60,000.

Requirements for the Hope Scholarship Credit are:

  • Students must be enrolled at least half-time.
  • Students must be enrolled in the first four tax years of post-secondary education.
  • Student must be enrolled in a program that offers a degree or certificate on completion.
  • Felony drug offenses are grounds for denial.

The Lifetime Learning Credit

The amount of the Lifetime Learning Credit is 20% of the first $10,000 qualified tuition and expenses paid by each family for each eligible student. Unlike the Hope Scholarship Credit, the Lifetime Learning Credit has no limit on the number of years for the student to claim it.

However a student can only claim only one of these credits, not both. Parents can claim both credits on their tax return, as long as the credits are claimed for different students from the same family. As an example, consider a taxpayer that has 2 children that are claimed as dependants. Both attend the same college and have qualified tuition and expenses of $4000 each, but one is a freshman and one is a junior. The taxpayer can claim the Hope Scholarship Credit in the amount of $2500 for the freshman student (100% of the first $2000 and 25% of the second $2000). For the junior student she will be able to claim the Lifetime Learning Credit in the amount of $800.

How are qualified tuition expenses determined?

Qualified tuition expenses are those fees that the student has to pay in order to be enrolled into college. These do not include room, board, books, student activities, athletics, insurance or equipment.

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