Introduction
The Taxpayer Relief Act of 1997 includes provisions
for education tax credits and deductibility
of interest on educational loans. Also, qualified
higher education expenses may be deductible as an adjustment
to income on page 1 of Form 1040 (see “Tuition
and Fees Deduction”, below). Accordingly, you
should consult your tax advisor about your specific
circumstances. Based on information currently available,
we have compiled the following information as a service
to Penn students and their families. We suggest that
you print or save this page as an easy reference. Penn
cannot provide individual tax advice and shall not
be liable for damages of any kind in connection with
this information.
Additional information regarding these credits and
deductions is available on the web at http://www.irs.gov/pub/irs-pdf/p970.pdf.
Education Tax Credits
The Hope Scholarship Credit and the Lifetime Learning
Credit are two tax credits for payments of qualified
post-secondary educational expenses. These are non-refundable
credits against federal income tax liability, which
may be claimed for qualified tuition and related
expenses paid on behalf of students in the taxpayer's
family (i.e., the taxpayer, spouse, or eligible dependents)
who are enrolled in a postsecondary educational program.
Penn has contracted with Tax Credit Reporting Service
(TCRS) for the performance of a number of functions
related to the education tax credits.
In accordance with IRS requirements, Penn is
required to mail a Form 1098-T to every student
enrolled in any term during calendar year 2008.
The 1098-T is a notice to the student of information
that Penn will be providing to the IRS. TCRS
will mail 1098-Ts on Penn’s behalf in late
January to the permanent address carried in the
Student Records System.
Schools are required to transmit financial information
(qualified charges and grants/scholarships) on the
1098-T form to the IRS. In order to further assist
students and their parents to determine their eligibility
for the tax credits, TCRS will include a Supplemental
Form, on the reverse side of the 1098-T, which will
provide a summary of relevant student account transactions,
including payments and loans and non-qualified charges,
for 2008.
If you have questions about the credits or about
the information on your Supplemental
Form or on the TCRS website, please call TCRS
at 1-877-467-3821. TCRS has staff specially trained
to deal with these inquiries. TCRS also maintains
a secure website (http://www.1098T.com)
which shows the specific transactions summarized
on the Supplemental Form. Please, do not call SFS.
Questions & Answers
Q. What are the enrollment requirements?
Hope Scholarship (HS): 1. at least ½ time;
2. degree or certificate program; 3. in one
of the first two years of post-secondary education.
Lifetime Learning Credit (LL): 1. may be less
than ½ time; 2. does not have to be
degree or certificate program; 3. not limited
to first two years of education; available
to upper-class and graduate students.
Q. How much credit may be claimed?
HS: 100% of the first $1200 ($2400 for students
in a Midwestern disaster area, see Form
8863), + 50% of the next $1200 ($2400 for students
in a Midwestern disaster area) of out-of-pocket payments
for qualified expenses for each eligible student;
thus, the maximum is $1800 ($3600 for students in
Midwestern disaster area) per student LL: 20% (40%
for students in a Midwestern disaster area) of the
first $10,000 of out-of-pocket payments for qualified
expenses for all students in the family; thus, the
maximum is $2000 per family ($4000 for students in
a Midwestern disaster area).
Q. What are qualified expenses?
Qualified expenses are charges for tuition and
fees (e.g. General Fee and Educational Technology
Fee) an individual is required to pay in order
to be enrolled (the Recreation Fee is included
for full-time undergraduates). They do not include
charges for room, board, books & supplies,
or other living expenses. . Students
from a Midwestern disaster area are eligible for
an expanded definition of what are qualified expenses. Please
see IRS publication 970 for details (http://www.irs.gov/pub/irs-pdf/p970.pdf).
Q. What are out-of-pocket payments?
Generally, these include payments made not only by
cash or check, but also by parent and/or student
loans and by credits from qualified state tuition
programs.
Q. Are there income limitations on who may
claim a credit?
Yes. The credits will start to phase out for married
couples with modified adjusted gross incomes of
$96,000 in 2008. Married filing jointly
taxpayers with modified adjusted gross incomes
of $116,000 or above are not eligible to take the
credits. For singles or heads of household, the
benefit of the credits starts to phase out for
incomes above $48,000. A taxpayer with a modified
adjusted income of $58,000 or greater is not eligible
to take the credits.
Q. May a taxpayer claim both a Hope Scholarship
and Lifetime Credit?
Yes, but not for the same student. For example,
if the taxpayer is in graduate school, and has
two children in college, one in the freshman year
and one in the junior year, he or she may claim
the Hope Credit for payments on behalf of the freshman
and the Lifetime Learning credit, up to $2000 ($4000
for a GO Zone student), for payments on behalf
of himself and the junior.
Q. Can both the parent and the student claim
the credit?
No. Either the student or the parents may claim the
credit, but not both. If the student is claimed as
a dependent by his or her parents, only the parents
may claim the credit. If not, only the student may
claim the credit.
Q. Are there filing restrictions on who may
claim a credit?
Yes. Married taxpayers filing separately may not
claim a credit.
Q. What does non-refundable mean?
The credit may be used to reduce the taxpayer's federal
income tax liability. However, if the taxpayer's
federal tax liability before application of the credit
is less than the amount of the credit, the difference
would not be refunded to the taxpayer. It is not
necessary for you to get a receipt as evidence of
your payment. You may want to retain subsequent monthly
bills that indicate the dates of payments made. You
may also use PENN InTouch to print your account history.
Q. How do I claim an education tax credit?
You must complete IRS Form 8863 (Education Credits).
You must file a 1040 or 1040A to claim a credit;
you may not use a 1040EZ.
Supplemental Form
Provides aggregate 2008 data for four types of student
account transactions:
- Tuition and Mandatory Fees
- Other Charges
- Scholarships and Grants
- Payments/Loans
The law provides that credits may be claimed for
payments made in the taxable year of qualified charges
for any academic term beginning in the taxable year
or the first three months of the subsequent year.
Therefore, the information regarding charges and
grants is based on the term to which they apply,
regardless of the date on which the transaction was
posted to your student account. On the other hand,
information regarding payments is based on the date
the transaction was posted, regardless of the term
to which it was applied.
The Supplemental Form also provides, where
applicable, data on adjustments to prior year
charges (tuition and mandatory fees) and grant
aid (scholarships/grants). These amounts reflect
transactions posted to your account after December
31, 2007, for semesters occurring in calendar
year 2007. If you or someone else claimed an
education tax credit on your behalf for the
2007 taxable year, you may have to recalculate
the eligibility for the 2007 tax credit, taking
these prior year adjustments into account.
Tuition and Mandatory Fees
Qualified charges (expenses) are defined as charges
required in order for the student to be enrolled.
We have included tuition, general fee, educational
fee, and other fees charged to all students in a
given academic program (e.g. the recreation fee for
full-time undergraduates). Charges for books and
supplies, room, board, and other living expenses
are expressly excluded.
The status of laboratory fees is not clear. We have not included them because
they are not required for enrollment in the program. In most cases, eligibility
for the tax credits will not be affected by whether or not lab fees are considered
qualified expenses.
Information on qualified charges has been included for all terms in 2008, even
if the transaction was posted to your student account in another year. For example,
tuition charges for Spring 2008 may be used to determine qualified expenses for
the tax credits even though they may have been posted to your account in December
2007. On the other hand, you may have to take into account, for either credit,
adjustments made after December 31, 2008, to Fall 2008 charges.
Adjustments in 2008 to Qualified Expenses for Terms Prior to January 1, 2008:
Under IRS regulations, if there is an increase in 2008 for Qualified Expenses
for terms prior to 2008, they are added to Qualified Expenses for terms in 2008.
However, if there are reductions for terms in prior years, they are reported
as prior year adjustments.
PLEASE NOTE: You may use Spring 2009 charges in determining your qualified expenses
for Taxable Year 2009 if you made a payment toward them in 2008. If you do, you
must also take Spring 2009 grants into consideration. Because of the timing of
the 1098-T’s, we have not included Spring 2009 charges or grants on your
Supplemental Form or on the website.
When viewing your transactions on the TCRS website, you may see transactions
with dates different from those on your student account. In some cases, we have
aggregated multiple transactions for the same charge, using the latest transaction
date from your student account.
Other Charges
We have included non-qualified charges on the Supplemental
Form and on the TCRS website solely for the purpose
of allowing you to see what was specifically not
included in your qualified charges. Non-qualified
charges should not be taken into account in determining
eligibility for education tax credits.
Information on non-qualified charges is included
for all terms in 2008, even if the transaction was
posted to your student account in another year.
When viewing your transactions on the TCRS website,
you may see transactions with dates different from
those on your student account. In some cases, we
have aggregated multiple transactions of the same
type, using the latest transaction date from your
student account.
Scholarships and Grants
In determining the amount of qualified expenses towards
which out-of-pocket payments may be allocated, you
will have to take into account non-taxable grants
and scholarships that you received for the terms
in question. The instructions for Form 8863 state
that you must reduce the total of your qualified
expenses by any tax-free educational assistance.
Therefore, we have included on Supplemental Forms
those grants and scholarships you received for those
academic terms for which qualified charges are reported.
Information on grant charges is included for all terms in 2008, even if the transaction
was posted to your student account in another year. For example, a Pell Grant
for Spring 2008 is included even if it was posted to your account in December
2007. On the other hand, changes in grant amounts for 2008 terms posted after
December 31, 2008 must also be considered.
Adjustments in 2008 to Qualified Expenses and Grants for Terms Prior to January
1, 2008: Under IRS regulations, if there is an increase in 2008 for Grants for
terms prior to 2008, they are added to Grants for terms in 2008. However, if
there are reductions for terms in prior years, they are reported as prior year
adjustments.
PLEASE NOTE: You may use Spring 2009 charges in determining your qualified expenses
for Taxable Year 2009 if you made a payment toward them in 2009. If you do, you
must also take Spring 2009 grants into consideration. Because of the timing of
the 1098-T’s, we have not included Spring 2009 charges or grants on your
Supplemental Form, or on the Website.
When viewing your transactions on the TCRS website, you may see transactions
with dates different from those on your student account. In some cases, we have
aggregated multiple transactions of the same type using the latest transaction
date from your student account.
Payments/Loans
Only those payments with a transaction date in Taxable
Year 2008 are reported. This differs from charges
and grants, which are reported on a term basis regardless
of whether the transaction was posted to your student
account in Taxable Year 2008. Only payments made
in 2008 may be counted in determining eligibility
for an education tax credit for Taxable Year 2008.
For example:
- Payments made in December 2008,
for Spring 2009 charges may be counted towards
2008 tax credits.
- Payments made in January 2009, for
Spring 2009 charges, may not be counted towards
2008 tax credits, but may be counted towards 2008
tax credits.
For purposes of education tax credits, credits from
educational loans may be counted as payments. A taxpayer
claiming credit for payments on behalf of a dependent
child may count both parent and student loan credits
as payments.
Note that IRS rules generally define the date of
a payment as the date it was mailed. We have reported
your payments based on the date they were posted
to your student account. There is a possibility that
payments made at the very end of 2008 were not posted
until 2009, and therefore not included on the Supplemental
Form and Website.
Tuition and Fees Deduction
The maximum deduction: The maximum amount
a borrower may deduct for tax year 2008 is $4,000.
Eligibility: The maximum deduction is
available to taxpayers whose adjusted gross
income is under $130,000 if filing a joint
return, or $65,000 if filing a single return.
No tuition and fees deduction is available
for taxpayers whose adjusted gross income is
larger than $80,000 if filing a single return,
or $160,000 if filing a joint return.
A dependent may not claim the deduction for him or
herself.
In order to use the deduction:
The deduction can only be claimed for tuition
and fees—not books or room and board—of
the taxpayer, a spouse, or a dependent.
The taxpayer must subtract the amount of any scholarships
and other educational assistance before calculating
the deduction. Taxpayers using a Qualified Tuition
Plan (Qualified Savings Plan or Prepaid Tuition Plan)
are subject to special rules and may wish to consult
a qualified tax adviser.
You cannot claim a deduction for Higher Education
Expenses in the same year you claim the Hope or Lifetime
Learning credit.
The deduction is reduced by amounts received as nontaxable
distributions from Qualified Tuition Plans (Qualified
Savings Plans or Prepaid Tuition Plans), Coverdell
Education Savings Accounts (formerly Education IRAs),
interest exclusion on educations savings bonds, and
certain scholarship.
The deduction for tuition and fees will be claimed
on Form 1040, line 35, “Domestic production
activities deduction.” Enter "T" on
the blank space to the left of that line entry if
claiming the tuition and fees deduction, or "B" if
claiming both a deduction for domestic production
activities and the deduction for tuition and fees.
For those entering "B," taxpayers must
attach a breakdown showing the amounts claimed for
each deduction.
Educational Loan Interest Deduction
Beginning January 1, 1998, taxpayers
who have taken loans to pay the cost of attending
an eligible educational institution for themselves,
their spouse, or their dependents generally may deduct
interest they pay on these student loans. If you
paid interest on a student loan in 2008, you may
be able to deduct up to $2,500 of the interest you
paid.
Questions & Answers
Yes. The loan must have been used to pay the costs
of attendance at an eligible educational institution
for a student enrolled at least half-time in a program
leading to a degree, certificate, or recognized credential.
Q. Is a student loan interest deduction
available if the student loan is not federally
guaranteed or otherwise subsidized?
Yes. As long as the loan was used to pay the costs
of attendance at an eligible educational institution
and the other eligibility requirements are met, the
deduction is available for the interest on the loan.
The deduction does not depend on whether the loan
is federally guaranteed or subsidized. The exceptions
to this are loans from relatives or qualified employer
plans.
Q. What costs are included in the costs of
attendance?
Costs of attendance include all items that are included
in costs of attendance for purposes of calculating
a student's financial need in accordance with the
Higher Education Act. Thus, they include tuition,
fees, room, board, books, equipment, and other necessary
expenses such as transportation. Costs of attendance
include more items than are included in qualified
tuition and related expenses for purposes of the
Hope Scholarship and Lifetime Learning Credits.
Q. Is the deduction available for interest
paid on loans used to pay for graduate school?
Yes.
Q. Are there any limits on who may take the student loan deduction?
Yes, there are income restrictions. To claim the
maximum deduction, a taxpayer must have a modified
adjusted gross income less than $70,000 (less than
$145,000 for married taxpayers filing jointly).
The amount of taxpayer's deduction is gradually
reduced for taxpayers with modified adjusted gross
incomes between $55,000 and $70,000 (between $115,000
and $145,000 for married taxpayers filing jointly).
Taxpayers with modified adjusted gross incomes
of $70,000 or greater ($145,000 or greater for
married taxpayers filing jointly) may not claim
the student loan interest deduction.
Q. May a parent claim the student loan interest
deduction if the parent borrows to pay his/her
child's cost of attending college?
Yes. An individual may claim the student loan interest
deduction if the individual borrows money to pay
the costs of attending college for certain members
of the individual's family or household (including
his/her children) and incurs the debt in a year in
which the individual supplies more than half of the
student's support.
Q. Does an individual have to itemize his/her
tax deductions to claim the student loan interest
deduction?
No. The student loan interest deduction is available
regardless of whether an individual elects to take
standard deduction or to itemize deductions.
Q. If a student is claimed as a dependent
by his/her parent in a particular taxable year,
may the student take the student loan interest
deduction for student loan interest that he/she
pays in that year?
No. The student may not claim the student loan interest
deduction in any taxable year in which he/she is
claimed as a dependent on another taxpayer's return.
However, if the student continues to pay interest
on a student loan and meets other eligibility requirements,
the student may claim the student loan interest deduction
for payments made in a later year when the student
is no longer a dependent on his/her parent's Federal
income tax return.
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