Education Tax Incentives
This information is designed to provide the
reader with a brief overview of a few of the several education tax benefits
available under
federal tax law and is not to be used for tax planning purposes.
Please consult your tax advisor for such assistance. Generally, a
taxpayer
may be able to claim any number of
education tax benefits as long as different qualifying expenses are used to
figure each one.
For more information regarding the education tax benefits described below
or information regarding additional education tax benefits,
please click on the reference links found at the bottom ot this page.
If you need a correction or have questions
about your 1098-T or the detail statement we provided, please call the
SIUE TAX LINE (618) 650-3113 or
email us at bursar@siue.edu
The Hope Credit, Lifetime Learning Credit,
and the Tuition and Fees Deduction
Hope Credit
For
2006 and 2007, the Hope credit is equal to a maximum of $1,650 a
year for qualified education expenses paid for each eligible
student and is available
only for the first two years of post-secondary education. The student must be
enrolled at least half-time
for at least one academic period
that begins during the tax year. The student must be pursuing an
undergraduate degree, certificate,
or other recognized educational
credential.
For 2006, the Hope credit is
phased out ratably for taxpayers with modified adjusted gross income
between $45,000 and $55,000
($90,000 and $110,000 for married taxpayers filing joint returns). For
2007, the phaseout ranges are between $47,000 and 57,000
(94,000 and $114,000 for joint filers).
The Hope credit is denied for a student
convicted of a felony drug offense.
Lifetime
Learning Credit
The Lifetime Learning credit is equal to a maximum of $2,000 a
year for qualified education expenses paid, per taxpayer return, for all
eligible students.
The Lifetime Learning credit may be claimed for a student enrolled less
than half-time. The Lifetime Learning credit is available for both
undergraduate and graduate or professional degreee qualified education
expenses. The Lifetime Learning credit may also be claimed for
courses that acquire or improve job skills. The student does not need to
be pursuing a degree, certificate, or other recognized educational
credential.
For 2006, the Lifetime Learning credit is phased out ratably for
taxpayers with modified adjusted gross income between $45,000 and
$55,000 ($90,000
and $110,000 for married taxpayers filing joint returns) For 2007, the phaseout
ranges are between $47,000 and $57,000
($94,000 and $114,000 for joint filers).
Tuition and
Fees Deduction
For taxpayers whose
modified adjusted gross income is too high to qualify for the Hope or Lifetime
Learning credit, a Tuition and Fees
deduction may be taken as an adjustment to income, regardless whether the
taxpayer itemizes his/her deductions on Schedule A (IRS
Form 1040).
For 2006 and 2007, taxpayers with modified
adjusted gross income that doesn't exceed $65,000 ($130,000 for married
taxpayers filing
joint returns) are
entitled to a maximum Tuition and Fees deduction of $4,000 per year.
Taxpayers with modified adjusted income that
doesn't exceed $80,000 ($160,000 for married taxpayers filing
joint returns) are entitled to a maximum Tuition and Fees deduction of $2,000.
Taxpayers with modified
adjusted income above the stated thresholds aren't entitled to the
Tuition and Fees deduction.
The Tuition and Fees deduction is scheduled to expire for tax years beginning
after 2007.
Qualified Education Expenses
The term "qualified education expenses" for the Hope or
Lifetime Learning credit and the Tuition and Fees deduction means tuition and
certain related fees required to be paid to an eligible educational
institution as a condition of enrollment or attendance of an eligible student
at the institution. Qualified education expenses do not include
expenses associated with meals, insurance, medical expenses (including
student health
fees), room and board, transportation, or other similar personal, living,
or family expenses even if the amount must be
paid as a condition
of enrollment or attendance. Amounts paid for courses involving sports,
games, or hobbies are not qualified
education expenses unless the education is part of the student's
degree program or, in the case of the Lifetime Learning credit, is taken
by the student to acquire or improve job skills, these expenses
can qualify. Student activity fees and expenses for course-related books,
supplies and
equipment may qualify if the fees and expenses must be paid to the
eligible educational institution as a condition of
enrollment or attendance.
Any qualified education expense payment used as a basis for the Hope or
Lifetime Learning credit and the Tuition and Fees deduction
during a year must be attributable to a qualified education expense for
an academic period beginning during that year or during the first
three months of the following year.
Adjustments to Qualified
Education Expenses
The amount of qualified education expenses for purposes of the Hope or
Lifetime Learning credit and the Tuition and Fees deduction must be
out-of-pocket costs. Therefore, the otherwise qualified education
expenses for the tax year are reduced by expenses paid for with tax-free
educational assistance which includes parts of tax-free scholarships and
fellowships, financial aid, and employer-provided educational assistance.
However, education expenses paid for with loans, gifts, bequests, or
inheritances do count as though paid by the taxpayer.
Eligibility
Generally, the Hope or Lifetime Learning credit may be claimed, or the
Tuition and Fees deduction taken, if the qualified education
expenses paid is for an eligible student that is either the taxpayer, the
taxpayer's spouse, or a dependent of the taxpayer for whom an
exemption was claimed.
A taxpayer may claim the Hope or Lifetime Learning credit regardless of
whether the student (dependent) or the taxpayer pays the qualified
education expenses. However, special rules apply for the Tuition
and Fees deduction.
The Hope or Lifetime Learning credit cannot be claimed for married
taxpayer filing separate returns, by taxpayers listed as dependents
on another taxpayer's return, and taxpayers who are nonresident alien
individuals for any portion of the tax year, unless the individual is
treated as a resident alien by reason of an election.
The Tuition and Fees deduction cannot be taken for married taxpayers
filing separate returns, by taxpayers that can be claimed as a dependent
on another taxpayer's return, regardless if a dependency exemption is
actually claimed, and taxpayers who are nonresident alien individuals for
any portion of the tax year, unless the individual is treated as a
resident alien by reason of an election.
Multiple Eligible Students in
the Same Family
For each eligible student, the taxpayer can elect only the Hope credit,
Lifetime Learning credit, or the Tuition and Fees deduction in the same
tax year. However,
if a family has multiple students who are eligible, the Hope or Lifetime
Learning credit may be claimed, or the Tuition and
Fees deduction may be taken, in the same tax
year as long as the Hope or Lifetime Learning credit or the Tuition and Fees
deduction is not for the
same student. Note that the Lifetime Learning credit is calculated
on a per return, rather than a per student, basis.
Other Education Tax Benefits
Student Loan Interest
Deduction
Taxpayers who have taken out loans
to pay the cost of attending an eligible educational institution for
themselves, their spouses, or dependents
Generally may deduct the interest
they pay. The maximum student loan interest
a taxpayer is permitted to deduct is $2,500 annually.
The limitation is the same
regardless of how many students are in the taxpayer’s family.
For 2006, the student loan
interest deduction is phased out ratable for taxpayers with modified adjusted
gross income between $50,000
and $65,000 ($105,000 and 135,000 for married taxpayers filing
joint returns). For 2007, the phaseout
ranges are between $55,000
and $70,000 ($110,000 and $140,000
for married taxpayers filing joint returns).
Generally, the student loan interest deduction cannot be
claimed for married taxpayers
filing separate returns and taxpayers listed as dependents on another
taxpayer’s return.
Business Deduction for Work-Related Education
Generally, taxpayers may be able
to deduct the costs of qualifying work-related education as business
expenses. If the taxpayer is an
employee, the
deduction is taken on Schedule A (IRS Form 1040). If the taxpayer is self-employed, the
deduction is either her taken
on Schedule C or
Schedule F (IRS Form 1040).
Qualifying work-related education is education that meets at least one
of the following two tests:
1.
The education is
required by the employer or the law to keep the taxpayer’s present
salary, status, or job. The qualifying
education must serve a bona fide business
purpose of the employer.
2.
The education
maintains or improves skills needed in the taxpayer’s present work.
However, even if the education meets one or
both of the above tests, it is not qualifying work-related education if it is
needed to meet
The minimum education requirements of the
taxpayer’s present trade or business, or it is part of a program of study
that will qualify the
taxpayer for a new
trade or business.
Education expenses such as tuition, books,
supplies, lab fees, certain transportation and travel costs, and costs of
research and typing when
writing a paper as part of an educational program may be
deductible.
More
Helpful Resource:
U.S. Department of
Education:
http://www.ed.gov/offices/OPE/PPI/HOPE/index.html
IRS Tax Information for Students:
http://www.irs.gov/individuals/students/index.html
IRS Publication 970, Tax Benefits for Higher Education:
http://www.irs.gov/pub/irs-pdf/p970.pdf