Educational Tax Credit

Today is: Sunday - November 22, 2009

 

General Information

The Internal Revenue Code provides both tax credits and deductions that may be taken to reduce the federal income tax burden for students or those paying the costs of a students higher education. Briefly, credits directly reduce the amount of income tax owed, while deductions reduce the amount of taxable income upon which income taxes are computed. Per IRS regulation, the WWU reports all tuition charges, financial aid, grant or scholarship payment information for students on the 1098T.

WWU does not report any payment information to the IRS since students may pay other fees on their student accounts. Information is reported for the current calendar year only. Amounts prepaid for future quarters/years will not be reported.

Expenses for books, supplies and/or equipment are not reported to the IRS. Students must keep the receipts and report these expenses when filing a tax return.

Disclaimer: The preceding information and that which follows is for general information only, and does not constitute tax advice. Because income tax rules are complicated, it may be helpful to consult with the IRS, directly, or a tax advisor.

 

Helpful Links

• IRS - Offset Education Costs web page
• IRS - Tax Information for Students
• IRS Publication 970, Tax Benefits for Higher
• IRS Publication 970, Tax Benefits for Education web page
• National Association of Student Financial and Administrators
• FinAid!

 

Hope Tax Credit

Eligibility and limitations:

• Student must be enrolled at least half-time during at least one academic period that begins during the tax year
• Student may not have had a drug felony conviction in the year that the credit applies
• For undergraduate educational expenses
• Applies only to first two years of post-secondary education
• May be claimed for only two tax years

Amounts:

• 100% of the first $1,200 of tuition and fees paid for higher education
• 1/2 of the next $1,200 of tuition and fees paid
• Up to a maximum credit of $1,800 per student

The Hope Tax Credit applies to qualified tuition and related expenses

less scholarships, grants, and other tax-free tuition benefits PAID the previous calendar year. The credit is available to parents of dependent students or to students who are NOT claimed as dependents on their parent's federal tax return.

*Note: The HOPE Tax Credit is non-refundable which means that it can reduce the amount of income tax paid to zero but may not be refunded.

 

Lifetime Learning Credit

Eligibility and limitations:

• Up to $2,000 for:
• Undergraduate, graduate and continuing education coursework taken to acquire or improve job skills
• There is no limit on the number of years the credit can be claimed

Amounts:

• Up to $2,000 of qualified education expenses

The Lifetime Learning Tax Credit allows students or the parents of dependent students to claim a credit for qualified education expenses paid for all students enrolled in eligible educational institutions, including the UW. . Like the Hope Tax Credit, this credit is non-refundable. This credit lets taxpayers claim a maximum credit of $2,000 per taxpayer (20% of up to $10,000 paid in higher education expenses) for payments made in the calendar year. It is available to parents of dependent students or to students who are NOT claimed as dependents on their parents' federal tax return. The maximum credit is $2,000 per family, not per student.

Taxpayers CANNOT take both the Hope and the Lifetime Learning Credit in the same year for the same student.

If you are unable to claim the HOPE or LIFETIME Learning Tax Credits, you may still be able to deduct qualified higher education expenses from your income. For those earning $80,000 or less a year ($160,000 if married and filing jointly), you may deduct up to $4,000 per year of qualified tuition and fees paid to the UW.

 

Who is Eligible for the Education Tax Credits

The full value of both the Hope Tax and the Lifetime Learning tax credits is available to:

• Married taxpayers filing jointly with a modified adjusted gross income (MAGI) of $116,000 or less
• Single taxpayers with a MAGI of $58,000 or less for calendar year 2008.

Taxpayers with a low tax liability may not be able to take all the credits, as the credits are nonrefundable, thus limited to taxpayers' total federal income tax obligation. Tax liability is the total amount of tax due; including both the balance due with the filing of the tax return and amounts paid throughout the year such as those from wage withholding and estimated tax payments.

 

Comparison of Education Credits

Lifetime Learning Credit	Hope Credit
Up to $2,000 credit per return	Up to $1,800 credit per eligible student
Available for all years of postsecondary education and for courses to acquire or improve job skills	Available ONLY until the first 2 years of post- secondary education are completed
Available for an unlimited number of years	Available ONLY for 2 years per eligible student
Student does not need to be pursuing a degree or other recognized educational credential	Student must be pursuing an undergraduate degree or other recognized education credential
Available for one or more courses	Student must be enrolled at least half time for at least one academic period beginning during the year
Felony drug conviction rule does not apply	No felony drug conviction on student's record

 

What is a 1098T?

WESTERN WASHINGTON UNIVERSITY
1098T SUPPLEMENTAL INFORMATION

This document contains important income tax information that is being furnished to the Internal Revenue Service.

Form 1098T is furnished to assist you and your tax preparer in calculating any education tax credit that you may be eligible for and completing Form 8863 which attaches to your tax return.

This form reports the qualified tuition and related expenses billed to you by Western Washington University during the calendar year ended December 31. Under Internal Revenue Code Section 25A, you may claim an education tax credit for qualified tuition and related expenses actually paid during the year.

This form also reports the amount of any scholarships or grants that you have received during the year. You may not be able to claim a tax credit for the entire amount of qualified tuition and related expenses paid by you during the year as these scholarships or grants may have reduced the amount you paid.

The following situations may affect the amount of education tax credit available to you:

1. The amount of any grants and scholarships received but not administered through Western Washington University may reduce the amount of any allowable education tax credit for the taxable year.
2. The amount of any reductions in charges for qualified tuition and related expenses, or any reduction in the amount of scholarships or grants, reported by Western Washington University to you may affect the amount of any allowable education tax credit for the prior calendar year.
3. Any reimbursements or refunds of qualified tuition and related expenses reported by an insurer may reduce the amount of an allowable education tax credit for a taxable year.

For questions on the amounts shown on Form 1098-T, call Student Accounts at
360-650-2865. For explanations relating to the eligibility requirements for, and calculation of, any allowable education tax credit, consult with your tax advisor.

 

What if I Lost my 1098T?

You do not need to file the 1098T with your tax return. All you need to have is the information that the form contains.

You can get that amount by logging into Web4U, select Student, Student Records, Tax Notification (includes tax detail as of 2003), Enter a Tax Year.