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 2007. 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 2007.
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 $1100 (see Form
8863), + 50% of the next $1100 of out-of-pocket payments for qualified
expenses for each eligible student; thus, the maximum is $1650 per student LL:
20% 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.
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.
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 $94,000 in 2007. Married filing jointly taxpayers with
modified adjusted gross incomes of $114,000 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 $47,000. A taxpayer with a modified adjusted income
of $57,000 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, 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 2007 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,
2006, for semesters occurring in calendar year 2006. If you or someone else claimed
an education tax credit on your behalf for the 2006 taxable year, you may have
to recalculate the eligibility for the 2006 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 2007, even
if the transaction was posted to your student account in another year. For example,
tuition charges for Spring 2007 may be used to determine qualified expenses for
the tax credits even though they may have been posted to your account in December
2006. On the other hand, you may have to take into account, for either credit,
adjustments made after December 31, 2007, to Fall 2007 charges.
Adjustments in 2007 to Qualified Expenses for Terms Prior to January 1, 2007:
Under IRS regulations, if there is an increase in 2007 for Qualified Expenses
for terms prior to 2007, they are added to Qualified Expenses for terms in 2007.
However, if there are reductions for terms in prior years, they are reported
as prior year adjustments.
PLEASE NOTE: You may use Spring 2008 charges in determining your qualified expenses
for Taxable Year 2008 if you made a payment toward them in 2007. If you do, you
must also take Spring 2008 grants into consideration. Because of the timing of
the 1098-T’s, we have not included Spring 2008 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 2007, 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 2007, even if the transaction
was posted to your student account in another year. For example, a Pell Grant
for Spring 2007 is included even if it was posted to your account in December
2006. On the other hand, changes in grant amounts for 2007 terms posted after
December 31, 2007 must also be considered.
Adjustments in 2007 to Qualified Expenses and Grants for Terms Prior to January
1, 2007: Under IRS regulations, if there is an increase in 2007 for Grants for
terms prior to 2007, they are added to Grants for terms in 2007. However, if
there are reductions for terms in prior years, they are reported as prior year
adjustments.
PLEASE NOTE: You may use Spring 2008 charges in determining your qualified expenses
for Taxable Year 2008 if you made a payment toward them in 2008. If you do, you
must also take Spring 2008 grants into consideration. Because of the timing of
the 1098-T’s, we have not included Spring 2008 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 2007 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 2007. Only payments made
in 2007 may be counted in determining eligibility
for an education tax credit for Taxable Year 2007.
For example:
- Payments made in December 2007,
for Spring 2008 charges may be counted towards
2007 tax credits.
- Payments made in January 2008, for
Spring 2008 charges, may not be counted towards
2007 tax credits, but may be counted towards 2006
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 2007 were not posted until 2008, 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 2005 is $4,000.
Eligibility:
The maximum deduction is available to taxpayers whose
adjusted gross income is under $160,000 if filing
a joint return, or $80,000 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.
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 2005, you may be able to deduct up
to $2,500 of the interest you paid.
Questions & Answers
Q. Are there any limits on what qualifies as a student loan?
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 $1340,000 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 $110,000 and $140,000 for
married taxpayers filing jointly). Taxpayers
with modified adjusted gross incomes of $70,000
or greater ($140,000 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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