New Tax Credits for Education

 As taxpayers begin the annual process of filling out their tax returns, they may notice that two new education tax credits are now available. These credits -- the HOPE Scholarship credit and the Lifetime Learning credit -- offer many people the opportunity to reduce the cost of their postsecondary education.

The HOPE Scholarship credit provides Americans with assistance for their first two years of postsecondary education. Available since January 1, 1998, the HOPE credit is equal to 100 percent of the first $1,000 in qualified tuition and fees and fifty percent of the next $1,000 that taxpayers pay for themselves, their spouse, or their children. In other words, a student with at least $2,000 in postsecondary education expenses would be provided with a $1,500 tax credit. To be eligible for this credit, which may be claimed for two taxable years for each student, students must be enrolled in a degree, certificate, or other program leading to a recognized educational credential and must carry at least one-half the normal full-time work load.

In addition, the Lifetime Learning credit provides additional postsecondary educational assistance. While the HOPE credit has received more publicity, the Lifetime Learning credit, available since July 1, 1998, offers potentially greater tax benefits. This credit is equal to twenty percent of the first $5,000 in qualified tuition and fees for an individual taxpayer or their family members. Thus, for taxpayers with at least $5,000 in postsecondary education expenses, the Lifetime Learning credit provides a tax credit of $1,000. The credit can be claimed for any number of years for postsecondary education expenses and can apply to students enrolled in a single course or in a program to acquire or improve job skills.

It is important to note that both of these new credits cannot be claimed for the same student in the same year -- taxpayers must use one or the other. However, a taxpayer with two dependents in postsecondary education could claim the HOPE credit for one and the Lifetime Learning credit for the other in a particular year. Finally, both of these credits are only fully available to taxpayers with adjusted gross incomes up to $40,000 or $80,000 for married couples. The credits are gradually phased out for taxpayers above these income limits.

Anyone interested in obtaining more information on either of these two new credits can order a copy of IRS Publication 970 by calling 1-800-TAX-FORM or by going to the IRS Internet page at www.irs.ustreas.gov/prod/forms_pubs/.
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February 17, 1999