If you pay qualified higher education expenses for yourself or for antoher person, you may be eligible for tax benefits as defined by the Taxpayer Relief Act of 1997. A brief overview of two relevant tax credits and the student loan interest deduction, as extracted from IRS Publication 970, is provided below. This information should not be construed as tax advice. Individuals should read IRS Publication 970 in its entirety, and consult their own tax adviser to determine if they qualify for these benefits. IRS Publication 970, Tax Benefits for Higher Education, and other relevant IRS publications are available through the IRS web site at: www.irs.ustreas.gov.

Rules that apply to both  the Hope and Lifetime Learning Credits

According to IRS Publication 970, the amount of each credit is determined by the amount you pay for qualified tuition and related expenses for eligible students and the amount of your modified adjusted gross income. These credits are subtracted from your tax but they are nonrefundable. This means if the credits are more than your tax, the excess is not refunded to you.

You will have to show the eligible student’s name and taxpayer identification number (usually a social security number) on your return. You, your spouse, or an eligible dependent can be an eligible student. The student must be enrolled at an eligible educational institution for at least one academic period (semester, trimester, quarter) during the year. An eligible dependent is a person for whom you claim a dependency exemption. It generally includes your unmarried child who is under age 19 or who is a full-time student under age 24 if you supply more than half the child’s support for the year. An eligible educational institution generally includes any accredited public, nonprofit, or proprietary post secondary institution eligible to participate in the student aid programs administered by the Department of Education.

Qualified tuition and related expenses are tuition and fees required for enrollment or attendance at an eligible educational institution. Qualified expenses do not include books, room and board, student activities, athletics (unless the course is part of the student’s degree program), insurance, equipment, transportation, or other similar personal, living, or family expenses. If you pay for qualified tuition and related expenses for an academic period that begins in the first three months of the following year, you can use the prepaid amount in figuring your credit.

If you claim a deduction for higher education expenses on your tax return, you cannot claim a credit for those same expenses. Similarly, if you pay higher education expenses with tax-free scholarship, Pell grant, or employer-provided educational assistance, you cannot claim a credit for those amounts. You can, however, claim a credit for expenses paid with the student’s earnings, loans, gifts, inheritances, and personal savings. If, in a later tax year, you receive a refund of an amount you used to figure a higher education credit, you may have to repay all or part of the credit.

For each eligible student, you can elect for any tax year only one of the credits or a tax-free withdrawal from an education IRA. For example, if you elect to take the Hope credit for a child on your 1998 tax return, you cannot, for that same child, also claim the lifetime learning credit for 1998 or take a tax-free withdrawal from an education IRA for 1998. In any one tax year, only one person can claim a higher education credit for an eligible student’s expenses. If you are paying higher education costs for your dependent child, either you or your dependent child, but not both, can claim a credit for a particular year. If you claim an exemption for your child on your tax return, only you can claim a credit. If you do not claim an exemption for your child on your tax return, only your child can claim a credit.

Your education credits are phased out (gradually reduced) if your modified adjusted gross income is between $40,000 and $50,000 ($80,000 and $100,000 in the case of a joint return). You cannot claim any higher education credits if your modified adjusted gross income is over $50,000 ($100,000 in the case of a joint return). For most taxpayers, modified adjusted gross income will be either adjusted gross income (AGI) as figured on their federal income tax return.

Hope Credit

IRS Publication 970 provides for a Hope credit of up to $1,500 for the qualified tuition and related expenses paid for each eligible student. This credit may be claimed for only two taxable years for each eligible student.

The IRS Publication also sets out eligibility requirements for Hope credits. You can claim a Hope credit only for an eligible student who also meets the following requirements:

  1. Is enrolled in one of the first two years of post secondary education (generally, the freshman or sophomore years of college)
  2. Is enrolled in a program that leads to a degree, certificate, or other recognized educational credential
  3. Is taking at least one-half of the normal full-time work load for his or her course of study for at least one academic period beginning during the calendar year
  4. Is free of any felony conviction for possessing or distributing a controlled substance

The amount of the Hope credit is 100% of the first $1,000 plus 50% of the next $1,000 you pay for each eligible student’s qualified tuition and related expenses. The maximum amount of Hope credit you can claim in 1998 is $1,500 times the number of eligible students. This means you can claim the full $1,500 for each eligible student for whom you pay at least $2,000 for qualified expenses. However, the credit may be reduced based on your modified adjusted gross income.

Lifetime Learning Credit

According to IRS Publication 970, you may be able to claim a lifetime learning credit of up to $1,000. The lifetime learning credit is for the total qualified tuition and related expenses paid during the tax year for all eligible students who are enrolled in eligible educational institutions.

Unlike the Hope credit:

  1. The lifetime learning credit is not based on the student’s work load. It is allowed for one or more courses.
  2. The lifetime learning credit is not limited to students in the first two years of post secondary education.
  3. Expenses for graduate-level degree work are eligible.
  4. There is no limit on the number of years for which the lifetime learning credit can be claimed for each eligible student.
  5. The amount you can claim as a lifetime learning credit does not increase based on the number of eligible students for whom you pay qualified expenses.

The amount of the lifetime learning credit is 20% of the first $5,000 you pay for qualified tuition and related expenses for all eligible students in the family. The maximum amount of lifetime learning credit you can claim is $1,000 (20% times $5,000). However, that amount may be reduced based on your modified adjusted gross income.

Form 1098T

Form 1098-T will support your ability to claim either the Hope or the Lifetime Learning Credit. It states, according to university records, how much was paid for the student's educational expenses. It also states the student's status as either full-yime or part-time, or graduate. It will be mailed to you by January 31st. Georgetown is also required to provide a copy of the Form 1098-T to the IRS by February 28.

Please keep an accurate mailing address on file with the university to ensure timely reciept of your 1098-T form. You can update your address on StudentAccess+ You can also call or email the Office of Student Accounts to change your address.

You should keep form 1098-T with your tax records. If you claim either the Hope or the Lifetime Learning Credit, you will also need to complete IRS Form 8863, Education Credits, and attach it to your Form 1040. You do not need to send a copy of the Form 1098-T with your Form 1040.



FAQs about Form 1098T

Q: What is meant by qualified tuition and fees?
A: Qualified tuition and related expenses are tuition and fees required for enrollment or attendance at an eligible educational institution. Only "out-of-pocket" expenses factor into calculating the credits. Tuition and related expenses paid with loans, earnings, gifts, inheritances, and personal savings qualify towards calculating the credit amount. However, qualified tuition and related expenses paid with a Pell Grant, other grants, tax-free scholarships, a tax-free distribution from an Education IRA, or tax-free employer-provided educational assistance are not taken into account in calculating the credit amount. Qualified expenses do not include books, room and board, student activities, athletics (unless the course is part of the student’s degree program), insurance, or any other fee not directly related to tuition.

Q: Who can claim either of these credits, my child or myself?
A: Either the parent or the child, but not both, may claim the credits in a particular year. You may be eligible to claim the credit if you still claim your child as a dependent on your tax return. If your child is claimed as your dependent, any qualified tuition and expenses paid by your child during the tax year are treated as if you had paid them, and therefore, are included in calculating the credit. Students claimed as dependents may not claim either credit on their own return. If you don't claim your child as a dependent, they may be eligible to claim either of the credits on their own tax return. 

Q: My child received a distribution from an Education IRA last year. Am I still eligible to claim the applicable education credit to reduce the tax I owe to the IRS?
A: Generally, no. The education credits cannot be claimed in the year a student receives a tax-free distribution from an Education IRA. However, the student may waive the tax-free treatment of the Education IRA distribution and elect to pay any tax that would otherwise be owed on the IRA distribution received in that taxable year. The student or the student’s parents may then claim either of the credits for expenses paid in said year.

Q: My tax filing status is married filing separately. May I still claim either tax credit?
A: No. Married taxpayers may claim either of the credits only if the taxpayer and the taxpayer’s spouse file a joint return for the taxable year. 

Q: I have determined that I qualify for the Hope Credit, but I don’t owe any federal taxes. May I carry forward the credit and claim it next year?
A: No. There are no carry forward rules that apply to these credits. Thus, you must have enough income tax to be offset by the credits to reap the full benefits. 
 
Q: My child qualifies for federal financial aid. Will the tax credits be counted as another source of income in computing their financial need?
A: No. The Federal Application for Student Aid (FAFSA) will not reflect the Hope and Lifetime Learning Credits as income. The university will follow this same policy.

Q: May a nonresident alien claim either the Hope or Lifetime Learning Credit?
A: Generally no. There is an exception for certain nonresident aliens who are married to U.S. citizens or resident aliens. Nonresident aliens should consult a U.S. tax advisor to determine whether the exception applies to them.

Q: If I prepaid tuition in 1998 for classes that begin in January 1999, may I use that amount in calculating my credit for 1998?
A: Yes. You may use prepaid qualifying tuition and related expenses for an academic period that begins in the first three months of the following year.

Q: I have three sons: one freshman, one sophomore, and one senior, and a daughter who is a first year medical student. All are claimed as dependents on my tax return. May I claim both the Hope and Lifetime Learning Credits?
A: Yes. You may be eligible to claim the Hope Credit for your son who is a freshman and your son who is a sophomore. The Hope Credit is calculated on a per student basis. You may also be eligible to claim the Lifetime Learning Credit for the combined qualified tuition and related expenses you paid toward your son who is a senior and your daughter who is a first year medical student. Remember, the Lifetime Learning Credit is a per family credit, although you may factor in all amounts paid for qualified tuition and fees for all family members in computing the credit. Therefore, the maximum available Lifetime Learning Credit does not vary with the number of students in the family. 

Q: May I claim both the Hope and the Lifetime Learning Credit for my child’s expenses in the same tax year?
A: No. For each year in which a student meets the eligibility requirements for the Hope Credit, the student’s expenses may be used as a basis for either the Hope or the Lifetime Learning Credit, but not both. 

Q: Is there a limit to the number of times I may claim the Hope Credit for my child?
A: Yes. The Hope Credit may be claimed in no more than two years for each student. 

Q: Is there a limit on how many years a Lifetime Learning Credit may be claimed?
A: No. Unlike the Hope Credit, there is no limit on the number of years in which a Lifetime Learning Credit may be claimed for each student. 

Q: May an individual claim a Lifetime Learning Credit for paying qualified tuition and related expenses for other family members?
A: Yes. An individual may claim the credit for his/her own qualified tuition and related expenses and the qualified tuition and related expenses for his/her spouse and other eligible dependents (including children) for whom the dependency exemption is allowed. Generally, a parent may claim the dependency exemption for his/her unmarried child if: (1) the parent supplies more than half of the child’s support for the taxable year, and (2) the child is under age 19 or is a full-time student under the age of 24.