As students, we are among a few groups of people in the United
States who are not highly rewarded by the IRS for the pursuit
of a higher education. Even on the basic tax levels, we are
unable to claim a deduction for our loss of income due to our
investment in schooling.
The hard-line approach the IRS takes towards students causes
most of them to assume that tax breaks for education are totally
nonexistent, but that is not correct. Current tax laws provide
numerous ways for a student to benefit, from reducing tax liability
to using credits and deductions to get a refund. The following
are some deductions and credits that we, as students, might
Hope Scholarship Credit(HSC)
The HSC can be claimed against your federal income taxes.
Basically, it can reduce the amount of taxes you pay to the
government. The HSC is offered to qualified students who have
been enrolled in college at least part-time for at least a year.
Students may take as a tax credit a percentage of the funds
they spend on tuition and expenses, specifically 100 percent
of the first $1,000 and 50 percent of the next $1,000 to a maximum
credit of $1,500.
Lifetime Learning Credit (LLC)
The LLC can be claimed against your federal income taxes.
It’s very similar to the Hope Scholarship credit, but without
time limitations on enrollment. The LLC is offered to qualified
students currently enrolled in educational institutions. In
2002, students could claim a credit up to a maximum of 20 percent
of the first $5,000 spent for tuition and other qualified expenses,
or $1,000. After 2002, the credit rules changed and students
can now claim 20 percent of the first $10,000 spent for tuition
and other qualified expenses. This makes the LLC a much more
attractive choice than the HSC. Even though the LLC and the
HSC are fairly similar, IRS rules state that if students take
one, then they cannot take the other. Students who are qualified
for both should take the more attractive of the two.
Student Loan Interest Deduction
Up to $2,500 of student loan interest can be deducted. Although
the deduction is only available for the interest payments made
during the first 60 months of the loan, it is still a very attractive
offer. There is one basic restriction: the person claiming the
full deduction must have a modified adjusted gross income of
$40,000 or less ($60,000 for married people filing jointly).
People who make more than this amount must follow certain IRS
guidelines on the amounts that can be deducted.
Earned Income Tax Credit (EITC)
The Earned Income Tax Credit (EITC) is a refundable tax credit
for people who are working but have a low income, which may
include qualified students. To qualify for the EITC, a single
person without children needs an adjusted gross income of $11,060
or less. It is recommended that students read IRS Publication
596 (http://www.irs.gov/pub/irs-pdf/p596.pdf) for more information
about the EITC and who qualifies for it.
The Accounting Club at HPU is opening a table on Fort Street
Mall, right in front of the Student Life – next to the MP building:
to help students understand their tax options. The table will
be open for student questions from March 10 to March 14, 10
a.m. to 3 p.m.