January 4, 1999
New higher education tax credits could almost have parents of college students looking forward to April 15. The 1998 tax year is the first year that the Hope and Lifetime Learning tax credits proposed by President Clinton, which directly reduce the amount of federal income tax owed, are available to help families meet the cost of post secondary education, whether for a bachelor's degree, graduate or professional study, or vocational or job-related training.
"A college education or job training can translate into thousands of dollars in additional income for families and a better life, and these tax credits are a means to make that end more affordable," said U.S. Education Secretary Richard W. Riley.
The two tax credits will benefit some 13 million families when fully implemented. Following are some guidelines on what the tax credits cover, who qualifies, and IRS sources to contact for more information.
A Hope tax credit of up to $1,500 can be claimed for two years for each student in the family who is enrolled in higher education at least half-time at an eligible education institution and who has not yet completed his or her first two years of study. The credit is 100 percent of the first $1,000 of payments for qualified tuition and fees and 50 percent of the second $1,000.
The goal of Hope is to make it possible for all Americans to afford the cost of the first two years of a college education.
In most states, the Hope credit wiill cover the cost of a community college education. There is no limit on the number of eligible students who can claim a Hope credit in a household in any given year.
Example: A married couple with an adjusted gross income of $60,000 with two children in college at least half-time--one a freshman at a community college with a tuition of $2,000 and the other a sophomore at a private colege with a tuition of $11,000. Using the Hope Scholarship tax credit, this couple can cut their taxes by $3,000.
The Lifetime Learning tax credit picks up where Hope leaves off; it's available for vocational, college graduate and professional students, and adults who want to upgrade their job skills or acquire new ones or pursue another course of study, and even for a student taking one course, as long as it is job-related.
In 1998, tax filers can claim a Lifetime Learning credit up to $1,000--20 percent of the first $5,000 paid in qualified tuition and fees on or after July 1. A taxpayer can claim only one Lifetime Learning credit per tax year for the aggregate amount of qualified tuition and fees of those students in the family for whom no Hope credit is claimed. There is no limit, however, on the number of years a taxpayer may claim the Lifetime Learning tax credit.
Examples: A homemaker in a family with adjusted gross income of $70,000 enrolls in a graduate teacher training program at a public university where the tuition isk $3,500. Using the Lifetime Learning Credit, her family's income taxes are cut some $700. Or a married auto mechanic with a family income of $32,000 goes back to school to take some computer courses to improve job skills. The tuition is $1,200; the tax savings is $240.
Both tax credits are phased out for joint filers who have between $80,000 and $100,000 of adjusted gross income.
Taxpayers cannot claim both credits for the same student in one tax year, even if the student is a sophomore at the beginning of the tax year and a junior in the second half of the tax year. Families will be able to claim the Lifetime Learning tax credit for some members of their family and the Hope tax credit for others who qualify in the same year.
Qualified expenses covered by the tax credits are tuition and required fees, less any grants and scholarships that are received tax free. Room, board, books, and supplies are not covered.
To take advantage of the Hope and Lifetime Learning tax credits, taxpayers must complete and submit IRS form 8863 with their federal tax return.
For more information, call the IRS Help Line at 1-800-829-1040, read IRS publication 970, or visit the Treasury Department's website at www.irs.ustreas.gov.