Hope Scholarship Tax Credit
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 for each eligible dependent for up to two tax years.
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's spouse. This means the eligible taxpayer may also be the eligible student.
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 determine 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 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; (4) whether the student was enrolled only
in a graduate-level program; (5) amounts billed for qualified expenses;
(6) adjustments made for a prior year; and (7) scholarships or grants.
Your school will mail this to you by January 31st of each 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. For further information, see IRS
Publication 970 - Tax Benefits for Education.
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.
NEW FOR 2009 and 2010
The American Recovery and Reinvestment Act created the American Opportunity Tax Credit which increased the Hope Scholarship for 2009 and 2010 to a total of $2,500 (an increase from the prior $1,800) of post-secondary education. The definition of qualified tuition and related expenses is expanded to include course materials, i.e. textbooks. Income phase-outs are increased to $80,000/$90,000 for single tax filers and $160,000/$180,000 for joint tax filers.