THE NEW EDUCATION TAX CREDITS

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INFORMATION FOR UNIVERSITY OF UTAH STUDENTS AND FAMILIES

DISCLAIMER:

The following information is offered as a service to University of Utah students and families to provide information on the education tax credits contained in the Taxpayer Relief Act of 1997. It is based upon our understanding of the provisions contained in the law and should not be considered an official document. We cannot provide you with any tax advice or assistance in determining whether you are eligible to claim the credit or how to claim the credit if you are eligible. This is not an official form nor does it represent official policy of the University of Utah. This material has not been reviewed or approved by an attorney. The information offered in this document is NOT tax advice. Students and families are urged to consult their tax advisor to determine eligibility to claim the education credits.

REFERENCES:

The following references provide guidance on the education credits:

EDUCATION TAX CREDITS:

The Taxpayer Relief Act of 1997 instituted two new education credits for taxpayers, the Hope Scholarship Credit and the Lifetime Learning Credit. Below is a summary of the education credits.

HOPE SCHOLARSHIP CREDIT:

Beginning January 1, 1998, taxpayers may be eligible to claim a nonrefundable Hope Scholarship Credit against their federal income taxes. The Hope Scholarship Credit may be claimed for the qualified tuition and related expenses of each student in the taxpayer’s family (i.e. the taxpayer, taxpayer’s spouse, or an eligible dependent) who is enrolled at least half-time in one of the first two years of post secondary education and who is enrolled in a program leading to a degree, certificate, or other recognized educational credential. The amount that may be claimed as a credit is generally equal to: (1) 100% of the first $1,000 of the taxpayer’s out of pocket expenses for each student’s qualified tuition and related expenses, plus (2) 50% of the next $1,000 of the taxpayer’s out of pocket expenses for each student’s qualified tuition and related expenses. The dollar limitation on the expenses for which the credit may be claimed will be indexed for inflation beginning in 2002.

The Hope Scholarship Credit may be claimed for payments of qualified tuition and related expenses made on or after January 1, 1998, for academic periods beginning on or after January 1, 1998. The Hope Credit is not available for any amount paid in 1997.

LIFETIME LEARNING CREDIT:

Beginning on July 1, 1998, taxpayers may be eligible to claim a nonrefundable Lifetime Learning Credit against their federal income taxes. The Lifetime Learning Credit may be claimed for the qualified tuition and related expenses of the students in the taxpayer’s family (i.e. the taxpayer, the taxpayer’s spouse, or an eligible dependent) who are enrolled in eligible educational institutions. Qualified tuition and fees for the Lifetime Learning Credit include amounts incurred for undergraduate or graduate level (and professional degree) courses. Through 2002, the amount that may be claimed as a credit is equal to 20% of the taxpayer’s first $5,000 of out of pocket qualified tuition and related expenses for all the students in the family (i.e. the maximum credit per taxpayer return will be $1,000).

After 2002, the credit amount is equal to 20% of the taxpayer’s first $10,000 of out of pocket qualified tuition and related expenses. These amounts are not indexed for inflation.

If the taxpayer is claiming a Hope Credit for a particular student, none of that student’s expenses for that year may be applied toward the Lifetime Learning Credit.

The Lifetime Learning Credit may be claimed for payments of qualified tuition and related expenses made on or after July 1, 1998, for academic periods beginning on or after July 1, 1998.

THE EDUCATION CREDITS IN GENERAL:

Income Limitations

The amount a taxpayer may claim as a Hope Scholarship Credit or Lifetime Learning Credit is ratably reduced for taxpayers who have modified adjusted gross income between $40,000 ($80,000 for married taxpayers filing jointly) and $50,000 ($100,000 for married taxpayers filing jointly). Taxpayers with modified adjusted gross income over $50,000 ($100,000 for married filing jointly) may not claim the Hope Scholarship Credit or Lifetime Learning Credit. The modified adjusted gross income limitation will be indexed for inflation in 2002 and years thereafter.

Qualified Tuition and Related Expenses

The term “qualified tuition and related expenses” means the tuition and fees an individual is required to pay in order to be enrolled at or attend an eligible institution. Amounts paid for any courses involving sports, games or hobbies are not eligible for the credit, unless the course is part of the student’s degree program. 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 or related expenses.

Grant, Scholarship, or Loan payments

Education expenses paid for with tax-free grants, scholarships, and employer-educational assistance are not eligible for either tax credit. Education expenses paid with loans are eligible for these tax credits.

Recordkeeping

You must keep the University of Utah informed of your correct name, social security number and address for tax reporting purposes. If you move or change your name, keep the University informed of your new name or address.
Individuals should save their records of tuition and financial aid for tax purposes.

General 1098-T Form Information

Consult Your Tax Advisor

There are many nuances in the education credits which have not yet been addressed by Congress or the Internal Revenue Service. Should you have questions regarding the education credits, consult your tax advisor.