Education Tax Credits
For the most recent update in tax benefits provided in IRS regulations please click here.
La Sierra University invites you to review this information in order to familiarize yourself with the tax benefits available under the Taxpayer Relief Act of 1997 (TRA 97). These benefits may apply to you or your parents.
Under the Tax Payer Relief Act, the University reports the social security numbers of students to the Internal Revenue Service as required so that eligible students or parents can claim the tax credits. The University provides students a 1098-T form that eligible students can use to claim their tax credits when filing their income tax forms.
The 2009 1098-T form lists tuition and qualified fees that were billed in that tax year. It will also show a total of the scholarships and grants that were paid towards tuition and qualified fees. You can use this information and the instructions on IRS form 8863 to determine your eligibility for these tax credits.
The information provided here is general information only. If you have questions about your eligibility for these credits or about your particular situation, please contact the Internal Revenue Service or a tax advisor. The University cannot advise you on how to file your income tax returns. However, if you have questions on the information La Sierra provides you, please feel free to contact the Student Financial Services Office.
Student Financial Services
La Sierra University
Several new tax benefits are available to help families meet the cost of post-secondary education. These tax benefits are intended to help students and their parents fulfill a variety of educational objectives.
Taxpayers can claim one or, in some cases, two new tax credits for the post-secondary educational expenses that they pay for themselves or their dependent children. These tax credits can directly reduce the amount of federal income tax. The Hope Scholarship Credit is available on a per-student basis for the first two years of post-secondary education, while the Lifetime Learning Credit applies on a tax-return basis and covers a broader time frame and range of educational courses. Educational expenses paid with loans are eligible for these tax credits. However, educational expenses paid for with tax-free grants, scholarships, and employer education assistance are not eligible for either tax credit.
A tax credit equal to all of the first $1,000 of tuition and fees (less scholarships, grants, and tax-free tuition benefits) and half of the next $1,000 of tuition and fees is available to parents of dependent students or to students who are not claimed as dependents on their parents’ return. The maximum potential credit of $1,500 may increase for inflation in any given year. Refer to Form 8863 for any changes to this amount. The Hope credit can be claimed only for two tax years and applies only to the first two years of post-secondary education. Students must be enrolled at least half-time during at least one academic period that begins during the tax year in question and cannot have had a drug felony conviction in the year that the credit applies.
The Lifetime Learning Credit applies to tuition and fees for undergraduate, graduate, and continuing-education course work. A family can claim on its tax return a credit equal to 20 percent of educational expenses or $2,000, whichever amount is lower. Eligible educational expenses are offset by scholarships, grants, and other tax-free tuition benefits.
The full value of both education tax credits is available to married taxpayers filing jointly with an adjusted gross income (AGI) of $80,000 or less and to single taxpayers with an AGI of $40,000 or less. The education tax credits are available at a prorated amount for those taxpayers whose AGI is between $80,000 and $103,000 if filing jointly and between $40,000 and $51,000 if filing singly. Beyond $103,000 for jointly and $51,000 for singly, the taxpayer is not eligible for these credits. This upper limit is updated annually on Form 8863.
Also, taxpayers cannot use both credits for the same students in a single year, nor may they combine these credits with tax-free withdrawals from education IRAs. Individuals should save their records of tuition and financial aid for tax purposes. Colleges and universities will need to collect social security numbers from all students so that information reports can be issued to assist families when they file their taxes.
Student Loan Interest Deduction. College graduates or their families can deduct student loan interest payments on the first sixty months of the loan payments. The tax deduction is available even if the taxpayer does not itemize other deductions. The loan does not have to be federally guaranteed or subsidized to be eligible for the deduction, but it must be used to pay education expenses such as tuition, fees, books, and room and board and meet all other requirements. As of 2002, the AGI limit for the full interest deduction was $50,000 (phasing out at $65,000) for single filers and $100,000 (phasing out at $130,000) for joint filers. Please refer to Form 8863 to find updated AGI limits. Also refer to IRS Form 970 for further details.
Employer-provided Educational Assistance. Employees can exclude up to $5,250 from their income when their employer helps them pay for the cost of undergraduate courses. This tax benefit applies to all undergraduate courses started before June 1, 2003. Reimbursement for work-related graduate courses may be excluded from taxes if the course maintains or improves job skills for an individual’s current job.
Tuition and Fees Deduction. The tuition and fees deduction can reduce the amount of your income subject to tax by up to $3,000. You can claim this deduction even if you do not itemize deductions on Schedule A (Form 1040). This deduction may be beneficial for taxpayers who cannot take either the Hope Scholarship Credit or Lifetime Learning Credit because their income is too high. Please refer to IRS Form 970 for complete details regarding eligibility for this deduction.
- What are the eligibility requirements for the student?
To be eligible for the Hope Tax Credit, the student must be (1) enrolled at least half-time for a minimum of one quarter that begins during the taxable year; (2) enrolled in one of the first two years of post-secondary education; and (3) free of any conviction for a Federal or State felony offense that consists of the possession or distribution of a controlled substance.
- What is the difference between the Hope Tax Credit and the Lifetime Learning Credit?
Briefly, the Hope Tax Credit is for students who are enrolled in college to obtain a degree or certificate, were enrolled at least half-time during the academic periods in 2003, and have not completed the second year of college. The Lifetime Learning Credit is for students who are enrolled in college to obtain or improve job skills. No minimum units are required for the Lifetime Learning Credit, nor are students required to be in their first two years of college.
- Who may claim the Lifetime Learning Tax Credit?
An individual paying qualified tuition and related expenses at a post-secondary educational institution, provided the institution is an eligible educational institution. Unlike the Hope Tax Credit, students are not required to be enrolled at least half-time. Non-citizens generally are not eligible to claim the Lifetime Learning Tax Credit.
- Is this part of my financial aid?
No. This does not affect your financial aid. If you received grants or scholarships, you may or may not be able to use this form when filing your tax returns as the amount of your aid may have covered your tuition and materials fees.
- What am I supposed to do with the 1098-T form?
It is for your information. You may use it to complete the information on IRS Form 8863, which you file with your 1040 or 1040A tax return. You cannot use it if you use the 1040EZ tax form. If you have someone who prepares your tax returns for you, you should review it with this person.
- Who is eligible for the tax credit?
The student or the taxpayer who claims the student as a dependent on his or her tax return. Married taxpayers must file jointly. The credit is based on payments made for tuition and certain related educational costs.
- Is the Lifetime Learning Tax Credit available for a student taking only one course?
- What qualifies as tuition and related educational costs?
The term “qualified tuition and related expenses” means the tuition and fees an individual is required to pay in order to be enrolled at or attend an eligible institution. At La Sierra University this includes tuition, lab fees, and material fees as listed in the course schedule. Amounts paid for any course or other educational expense involving sports, games or hobbies are not eligible for the tax credit. Charges and fees associated with room, board, student activities, athletics, health insurance, books, equipment, transportation, and similar personal, living, or family expenses are not qualified tuition or related expenses.
- Where can I get further information on these subjects?
The IRS website (www.irs.gov) has information on all of these tax issues. You can also find other contact information on the website. The specific forms you will want to search for are Publication 970 and Form 8863.