TAX BREAKS FOR STUDENTS!!!

The Taxpayer Relief Act of 1997 provides two new tax credits for education expenses, the Hope Scholarship Credit and the Lifetime Learning Credit. A tax credit reduces the actual tax amount you owe which is better than a tax deduction that merely reduces your taxable income.

The Hope Scholarship Credit applies only to students who are in their first two years of postsecondary education. Unfortunately, students enrolled at MUSC-DO NOT qualify for this credit since all of our undergraduate programs require students to complete at least 60 semester hours of work from another institution prior to enrollment in one of our programs.

The good news for MUSC students is that the Lifetime Learning Credit is available for courses taken in any level of postsecondary education. So we will focus on this credit since this can benefit you financially.

Lifetime Learning Tax Credit

Who Can Claim the Credit and How?

A student paying qualified tuition and related expenses to a postsecondary educational institution can claim the credit. If the student is claimed as a dependent on someone else's return such as by a parent, then the parent may claim the credit.

If a student or parent of a dependent student is single and earns up to $40,000, the maximum amount of credit is allowed. The credit is phased out between earnings of $40,000 and $50,000. Earnings in excess of $50,000 will not qualify for any portion of the credit.

If a student or parent of a dependent student is married and earns up to $80,000, the maximum amount of credit is allowed. For joint filers, the credit is phased out between earnings of $80,000 and $100,000. No credit will apply to earnings in excess of $100,000.

To claim the credit, you must file a federal tax return and have tax liability.

How Much Is the Credit?

The Lifetime Learning Credit is equal to 20% of the first $5,000 of tuition and fees ($10,000 after 2002) incured by the student. So the maximum credit is $1,000 ($2,000 after 2002) per family, regardless of the number of students.

What Expenses Qualify For the Credit?

The credits are available for tuition and fees required for a student's enrollment at a college. Charges and fees associated with meals, lodging, student activities, athletics, insurance, transportation, and similar personal, living or family expenses are not qualified expenses.

Generally, only out-of-pocket expenses qualify. Therefore, total tuition and related expenses are reduced by tax-free scholarships. However, tuition and fees are not reduced by a gift or inheritance. And a credit can be claimed for tuition and expenses paid with borrowed funds.

When Can the Credit Be Claimed?

The credit can be claimed for costs incurred after June 30, 1998 for academic periods beginning after that date. The credit will apply to the year the expenses are paid. For example, a prepayment made in December, 1998 for a course taken in the spring semester of 1999 will qualify for the credit on your 1998 tax return as long as the course starts within three months after the close of the year.

Where to Look For More Information?

For more information, see IRS Publication 970, Tax Benefits for Higher Education. It can be downloaded from IRS website http://www.irs.ustreas.gov/prod/forms_pubs/pubs.html. CLICK HERE.

We encourage you to consult your personal tax advisor to help you take the best advantage of this new tax break.

Understanding the Hope Scholarship (For Students and Families)

What Is It?

The Hope Scholarship is a tax credit, not a scholarship. Tax credits are subtracted from the tax your family owes, instead of subtracting them from taxable income like a tax deduction. Your family must file a federal tax return and owe taxes to get this tax credit. You can't get a refund for the Hope credit if your family doesn't pay taxes. If your family owes less in taxes than the maximum amount of the Hope tax credit for which your family is eligible, you can only take the credit for the amount you owe in taxes.

Your family may claim a tax credit up to $1,500 for each eligible dependent for up to two tax years. In other words, your family may claim up to 100% of the first $1,000 of eligible expenses and 50% of the next $1,000 for a maximum credit of $1,500.

The exact amount of the Hope credit depends on your family's income, the amount of qualified tuition and fees paid, and the amount of certain scholarships and allowances subtracted from tuition. The total credit is also based on how many eligible dependents are in your family, rather than a maximum dollar amount for the family, like the Lifetime Learning tax credit.

Who Qualifies?

The Taxpayer: An eligible taxpayer must file a federal tax return and owe taxes to claim the Hope credit. In addition, the taxpayer must claim an eligible student as a dependent on the tax return, unless the credit is for the taxpayer or the taxpayer' spouse. (This means the eligible taxpayer may also be the eligible student.) Taxpayers may be eligible for the largest credit with an Adjusted Gross Income (AGI) of up to $40,000 for a single taxpayer, or $80,000 for married taxpayers. The credit amount is gradually reduced for families with incomes between $40,000 and $50,000 if single, or $80,000 and $100,000 if married.

The Student: The tax law says an eligible student must be enrolled at least half-time in an eligible program leading to a degree or certificate at an eligible school during the calendar year AND must not have completed the first two years of undergraduate study. The college you attend can help you figure out whether you meet this requirement. You may claim the credit yourself if you are not claimed as a dependent by another taxpayer. (Once again, this means that the eligible student may also be the eligible taxpayer.) Also, you may not have been convicted of a Federal or State felony drug offense before the end of the tax year in which you are enrolled.

How Do You Get It? To apply for the credit, the taxpayer must report the amount of tuition and fees paid as well as the amount of certain scholarships, grants, and untaxed income used to pay the tuition and fees. The law says that schools must send this information in the form of a "return" to each taxpayer and to the IRS. For the 2002 tax year, this return will include: (1) the name, address, and taxpayer ID number of the school; (2) the name, address, and taxpayer ID of the student for whom tuition was paid; (3) whether the student was enrolled at least half-time; and (4) whether the student was enrolled only in a graduate-level program. Your school will mail this to you by January 31, 2003, for the 2002 tax year. This "return" from the school will also include the phone number of a person you can call at the school if you have questions. You will use this information and your own records about tuition and fee amounts you paid to fill out the IRS Form 8863 to claim the tax credit. You may wish to talk to a tax advisor for help in calculating the amount of your credit.

When Is It Available?

The taxpayer may claim the Hope credit for qualified expenses paid in tax years beginning January 1, 1998, and after, for education furnished in academic periods beginning on or after this date.

Taxpayers may pay educational expenses in a tax year for an academic period that begins following the tax year (e.g., paying in December 2000 for an academic period beginning in the first three months of 2001). Because the law did not take effect until January 1, 1998, you were not allowed to prepay for the first year of the credit.

Can A Family Claim Multiple Benefits?

A family may claim a Hope credit, a Lifetime Learning credit and an exclusion from gross income for certain distributions from qualified State tuition programs or education IRAs as long as the same student is not used as the basis for each credit or exclusion AND the family does not exceed the Lifetime Learning maximum per family.

Understanding the Lifetime Learning Tax Credit (For Students and Families)

What Is It?

The Lifetime Learning credit is a tax credit available to individuals who file a tax return and owe taxes. This means the amount of the credit is subtracted from the taxes your family owes, rather reducing taxable income like a tax deduction does. You can't get a refund for the Lifetime Learning credit if your family doesn't pay taxes. If your family owes less in taxes than the maximum amount of the Lifetime Learning tax credit for which your family is eligible, you can only take the credit for the amount you owe in taxes.

Your family may claim a tax credit up to $1,000 per tax year (until January 1, 2003) and up to $2,000 (after that date) for the taxpayer, taxpayer's spouse, or any eligible dependents for an unlimited number of tax years. A family may claim up to 20% of $5,000 of eligible expenses for expenses paid after June 30, 1998, and prior to January 1, 2003, and up to 20% of $10,000 of eligible expenses (for expenses paid after January 1, 2003, and after).

The actual amount of the credit depends on your family's income, the amount of qualified tuition and fees paid, and the amount of certain scholarships and allowances subtracted from tuition. This credit is family-based (e.g., $1,000 per family) rather than based on the number of dependents in your family like the Hope credit.

Who Qualifies?

The Taxpayer: An eligible taxpayer must file a tax return and owe taxes to claim the credit. The taxpayer must also claim the eligible student as a dependent unless the credit is for the taxpayer or the taxpayer's spouse. (This means the eligible taxpayer may also be the eligible student.) The taxpayer may be eligible for the maximum benefit with an Adjusted Gross Income (AGI) of up to $40,000 for a single taxpayer or $80,000 for married taxpayers. The credit amount is gradually reduced for families with incomes between $40,000 and $50,000 if single or between $80,000 and $100,000 if married.

The Student: An eligible student may be enrolled at least one-half time in an eligible program leading to an undergraduate or graduate degree at an eligible school during the calendar year OR may be enrolled at any enrollment level in any course of instruction at an eligible school to acquire/improve the student's job skills during the calendar year. You may claim the credit yourself if you are not claimed as a dependent by another taxpayer. (Once again, this means that the eligible student may also be the eligible taxpayer.)

How Do You Get It?

To apply for the credit, the taxpayer must report the amount of tuition and fees paid as well as the amount of certain scholarships, grants, and untaxed income used to pay the tuition and fees. The law specifies that schools will send this information in the form of a return to individual taxpayers and to the IRS. For the 2002 tax year, this return will include: 1) the name, address, and taxpayer ID number of the school; 2) the name, address, and taxpayer ID of the student for whom tuition was paid; 3) whether the student was enrolled at least half-time; and 4) whether the student was enrolled only in a graduate-level program. Your school will mail this to you by January 31, 2003 for the 2002 tax year. This "return" from the school will also include the phone number of a person you can call at the school if you have questions. You will use this information and your own records about tuition and fee amounts you paid to fill out the IRS Form 8863 to claim the tax credit. You may wish to talk to a tax advisor for help in calculating the amount of your credit.

When Is It Available?

The taxpayer may claim the Lifetime Learning credit for qualified expenses paid in tax years beginning July 1, 1998, and after.

Can A Family Claim Multiple Benefits?

A family may claim a Lifetime Learning credit, a Hope credit, and an exclusion from gross income for certain distributions from qualified State tuition programs or education IRAs as long as the same student isn't used as the basis for each credit or exclusion AND the family doesn't exceed the Lifetime Learning maximum per family.