Federal Tax Benefits Help You
Pay for College
Scholarships, Fellowships, Grants and Tuition
Scholarships and fellowships for undergraduates and
graduate students are
free as long as the student is a candidate for a
degree at an eligible
institution and they use the scholarship, fellowship,
or grant to pay for
qualified educational expenses. Qualified expenses include
and certain course related expenses. Taxable expenses
include room and
board, research, travel, and clerical help.
The Hope Credit
Hope Credit may allow a student to turn a portion
of their higher education expenses into tax savings.
The Hope Scholarship enables taxpayers to take up to
$1,500 in tax credit for payment of qualified education
expenses for the first two years of undergraduate education
at eligible colleges and universities. The expenses
must have been paid during the academic year when the
student was enrolled with at least half-time status.
The amount that the taxpayer can claim decreases as
adjusted income increases.
According to Doedtman, the Hope credit is per student.
If you are married and filing jointly, and are both
freshmen or sophomores, then you could be eligible for
up to a $3,000 credit. To take advantage of the credit,
however, a taxpayer may not have had a felony drug conviction
on their record.
Karen Chan, Extension Educator from the University
of Illinois Extension, Urbana in Illinois said students
should remember that the Hope credit is only available
for the first two years of postsecondary education.
That means that it will generally be used when you are
a freshman or sophomore. Chan advised students to definitely
use the Hope Credit if it is available instead of the
Lifetime Credit because it will give you a bigger credit
for the same amount of expenses. If you failed to claim
the credit last year, you can file an amended tax return
for up to three years after your original filing date.
Filing an amended return can help you get a refund of
hundreds of dollars or even more, Chan said.
Lifetime Learning Tax Credit
Learning Tax Credit allows a student to claim a
tax credit for up to $2,000. The credit amount is 20
percent of qualified expenses up to $10,000, or $2,000.
Eligible students must be enrolled in at least one course,
but do not need to be pursuing a degree. Eligible students
include undergraduate students in their junior or senior
year and graduate students. Nondegree U.S. citizens
who take courses to improve or acquire job skills can
also claim this credit. The amount that the taxpayer
can claim decreases as adjusted income increases.
If you are an adult who is taking classes but
you arent working toward a
degree, this credit will probably work for you,
Deduction for Higher Education Expenses
Taxpayers can take a deduction for higher education
expenses at the
undergraduate or graduate level. In 2004 and 2005, the
was $4,000 per year. This deduction is available for
who did not qualify for the Hope or Lifetime Learning
Chan advises that 2005 is the last year this is available,
so you can claim
it on your 2005 tax return. On your 2005 return,
calculate your taxes with
this deduction and then with either the Hope or Lifetime
Learning credit to
see which one gives you the lower tax. If your income
is too high to use
the Hope or Lifetime, you may still qualify for Higher