Tax Credits



Congress passed on August 5, 1997, the Taxpayer Relief Act of 1997, and the Balanced Budget Act of 1997, which contain the Hope Scholarship Credit and the Lifetime Learning Credit.

Tax Credits and Deductions

You can claim tax credits or, in some cases, deductions, for expenses that you pay for postsecondary education for yourself, your spouse, or your dependent children. The Hope tax credit, introduced in 1998, is available on a per-student basis for the first two years of postsecondary education, whereas the Lifetime Learning credit is available on a tax-return basis and covers a broader timeframe and range of educational courses. A new "above-the-line" deduction, which is available for course-work beginning January 1, 2002, provides some relief to families whose income is too high to qualify for the Hope and Lifetime Learning tax credits. Education expenses paid for with the tax-free grants, scholarship, and employer-provided tuition assistance are not eligible for the credits or for the above-the-line deduction. However, education expenses paid for with loans are eligible for these benefits.

Hope Tax Credit

A tax credit equal to all of the first $1,000 of tuition and fees (less scholarship, grants, and tax-free tuition benefits) and half of the next $1,000 of tuition and fees, for a maximum of $1,500 per student, is available to parents of dependent students or to students who are not claimed as dependents on their parents' tax return. Beginning in 2002, the credit will be indexed for inflation. Refer to IRS Form 8863 for the maximum credit amounts for your 2002 tax return and beyond. The Hope credit can be claimed only for two tax years and applies only to the first two years of postsecondary education. Students must be enrolled at least half-time in a program that leads to a degree, certificate, or other educational credentials during at least one academic period that begins during the tax year. Students cannot have had a drug felony conviction in a year in which the credit applies.

Income Limitations on Education Tax Credits

The full value of the education tax credits is available to married taxpayers filing jointly with an adjusted gross income (AGI) of $80,000 or less and to single taxpayers with an AGI of $40,000 or less. The tax credits phase out gradually. When married taxpayers' AGI exceeds $100,000 or a single taxpayer's AGI exceeds $50,000, they are not eligible for these credits. After tax year 2001, the income limits will be adjusted for inflation. For year 2002 tax return and beyond, you'll need to refer to IRS Form 8863 to find the correct AGI limits.

New Above-The-Line Deduction

If you cannot claim either the Hope or Lifetime Learning tax credit, you may still be able to deduct qualified higher education expenses from your taxable income. Self-supporting students, including those who borrow to pay tuition, are eligible to take this deduction, without filing a long Form 1040. This new tax deduction also provides relief to families whose AGI is too high to qualify for the Hope or Lifetime Learning tax credits. Single filers with AGI of up to $65,000 ($130,000 for joint filers) can deduct $3,000 per year in 2002 and 2003, and $4,000 per year in 2004 and 2005. Note: you do not need to itemize to claim the new deduction, which expires in 2005.

The Taxpayers Relief Act requires the University of South Carolina to file a form 1098-T, Tuition Payment Statement, with the IRS and to provide a copy to each student. The University of South Carolina Columbia campus will forward to all fee paying students a 1098-T in January of each year. If you do not receive this form by February 15, you may contact the Business office at 521-3107 for a reprinted form. The information for the form is not available to USCB until after the Columbia campus prints the form. It is recommended that all taxpayers consult with their tax advisor, as each individual's tax situation is different.

For further information contact the IRS website at

IRS Publication 970, Tax Benefits for Higher Education, and Publication 520, Scholarships and Fellowships, are available from the IRS Website at or by calling 1-800-TAXFORM.

Information for this ducoment was taken from a brochure published by the National Association of College and University's Business Officers (NACUBO).