- Taxpayer Relief Act of 1997 (TRA-97)
- Hope Tax Credit
- American Opportunity Tax Credit
- Lifetime Learning Credit
- Eligible Educational Expenses (Hope and Lifetime)
- Income Requirements (Hope and Lifetime)
- Student Loan Interest Deduction
- Nonresident Alien Taxable Scholarships
- Requirements for Lincoln University
- Additional Information
Taxpayer Relief Act of 1997 (TRA-97)
The Taxpayer Relief Act of 1997 (TRA-97), passed by the United States Congress in August of 1997, includes provisions designed to assist families with paying and saving for college. The major educational provisions of the legislation include tax credits for college costs and tax-sheltered education savings accounts. Lincoln University believes this is an outstanding opportunity for our students to save money when paying for the costs of their education.
Hope Tax Credit
For a student to receive the Hope Tax Credit, he/she must have been enrolled at least half time in a degree program, or other program that leads to a recognized certificate, during the tax year. The credit may only be claimed for the first two years of post-secondary education and may be claimed only in two tax years. Students are ineligible to receive the credit if they have been convicted of a federal or state drug offense.
Payments for eligible educational expenses must have been made for academic periods within the tax year or for an academic period that begins within the first three months of the following year. The credit is calculated as 100 percent of the first $1,200 and 50 percent of the next $1,200 of eligible educational expenses with a maximum of $1,800 per eligible student.
NOTE: The American Opportunity Tax Credit, which expanded and renamed the already-existing Hope Tax Credit, can be claimed for expenses paid for tuition, certain fees and course materials for higher education in 2009, 2010, 2011 and 2012.
American Opportunity Tax Credit
The American Opportunity Tax Credit modifies the existing Hope Credit for tax years 2009 and 2010 under American Recovery and Reinvestment Act (ARRA). The credit was extended to apply for tax years 2011 and 2012 by the Tax Relief and Job Creation Act of 2010. The new credit makes the Hope Credit available to a broader range of taxpayers, including many with higher incomes and those who owe no tax. It also adds required course materials to the list of qualifying expenses and allows the credit to be claimed for four post-secondary education years instead of two.
Payments for eligible educational expenses must have been made for academic periods within the tax year or for an academic period that begins within the first three months of the following year. The credit is calculated as 100 percent of the first $2,000 and 25 percent of the next $2,000 of eligible educational expenses with a maximum of $2,500 per eligible student. Additionally, 40 percent of the credit (up to $1,000) is refundable for many taxpayers.
Lifetime Learning Credit
Unlike the Hope Tax Credit, to be eligible for the Lifetime Learning Credit, it is not necessary for the student to be enrolled at least half time. In addition, the credit can be claimed for students taking non-degree courses that allow a student to be better skilled in the job market.
Payments for eligible educational expenses must have been made for academic periods within the tax year or for an academic period that begins within the first three months of the following year. The credit is calculated as 20 percent of the first $10,000 of educational expenses for eligible students.
Eligible Educational Expenses (Hope and Lifetime)
Eligible educational expenses for both the Hope and Lifetime Tax Credits include only tuition and other fees required for enrollment at a post-secondary institution and paid to that institution. For Lincoln University, these fees include undergraduate and graduate tuition, supplemental course fees, application fees, required activity fees and required computing fees. Costs associated with room and board and books are not eligible educational expenses.
Income Requirements (Hope and Lifetime)
For both the Hope and Lifetime Tax Credits, the amount of the credit may be reduced as the taxpayer's income increases beyond certain limits. For further information, you may consult your tax advisor or contact the IRS at (800) TAX-FORM (800-829-3676).
Student Loan Interest Deduction
Interest may be deducted on qualifying loans paid by the taxpayer, the taxpayer's spouse or qualified dependents of the taxpayer. Anyone who is eligible to be claimed as a dependent cannot claim the tax deduction, only the taxpayer claiming him or her may.
Student loan interest paid in the first 60 months of the loan is eligible for the deduction. Periods when a borrower is in authorized deferment do not count toward the 60-month period. The deduction applies to payments made during the calendar year. If the loan already existed at that time, interest payments remain eligible until the initial 60-month period of time has expired on the loan.
Similar to the Hope and Lifetime tax credits, the student loan interest deduction is limited to loans that pay only for qualified educational expenses. The definition for qualified expenses, however, is broader than that of the Hope and Lifetime and includes educational fees, room and board, and books.
The taxpayer may be eligible to deduct an amount equal to the interest paid during the year up to a maximum of $2,500. The deduction is phased out based upon income requirements. For further information, you may consult your tax advisor or contact the IRS at (800) TAX-FORM (800-829-3676).
Nonresident Alien Taxable Scholarships
Under Internal Revenue laws and regulations, scholarships received by nonresident aliens that exceed the amount of qualified tuition and fees are subject to 14% federal income tax withholding. Qualified expenses include tuition and related fees such as lab fees, activity fees, etc. Room and board charges are NOT qualified expenses. This means that nonresident aliens who receive full U.S. source scholarships that pay all tuition, fees, and room and board will have taxable income.
Nonresident aliens who receive such scholarships will receive a Form 1042-S from Lincoln University and 14% of the taxable amount will be withheld and paid to the IRS as required. Students from countries, which the U.S. has applicable tax treaties will not be subject to withholding but will still receive a 1042-S.
Nonresident aliens in this situation will receive the full amount of the scholarship and the 14% tax will be assessed to the student account. Students must then pay that amount to the University.
Nonresident alien students are advised to consult with private tax specialists for tax advice.
Requirements for Lincoln University
Lincoln University is required to provide the student with a Form 1098-T Tuition Payments Statement by February 1 for the prior calendar year.
It is important to note that Lincoln University cannot provide tax advice. The information in this release should not be construed as tax advice or counsel. Students and taxpayers are encouraged to contact a tax professional for information relating to eligibility for and calculation of the tax incentives.