As Tuition Bills Bear Down, The Tax Code Could Be Of Help
If you're about to pay fall semester college tuition for yourself, your spouse or your child, the tax code will probably help you defray part of the cost. Most taxpayers are eligible for one of two valuable college tax credits.
The Hope Scholarship credit can provide tax savings of up to $1,500 a year for each student in the first two years of college. The Lifetime credit, which provides tax savings of up to $1,000 per tax return, covers tuition after the first two years. The credits can be claimed for college or vocational school courses taken by yourself, your spouse or dependent child.
The tax savings from the credits may seem insignificant for parents facing tuition bills of $20,000 or more to send their children to Ivy League schools. But for most families, the credits will provide significant help. The Hope credit will defray the lion's share of tuition for students attending community colleges in their freshman and sophomore years. And the Lifetime credit will generally subsidize one-fifth of the average tuition bill paid by students attending state universities.
Parent should become familiar with the ins and outs of the tuition tax credits so that they have an understanding of how much financial help they can expect from the tax code and how much will need to come from other sources. How much of a credit you'll be eligible to claim next tax season will largely depend on your income, how much tuition you paid and whether the student received any scholarship funds.
INCOME REQUIREMENTS. The chief limitation is the income-eligibility requirements. Both the Hope and Lifetime credits are reduced for married couples with adjusted gross incomes above $80,000 and are unavailable for couples with incomes above $100,000. For unmarried individuals, the credits are phased out between incomes of $40,000 and $50,000. But there is a way for higher-income parents to circumvent the income-eligibility requirements. If the parents can't claim a credit because their income is to high to qualify, IRS regulations allow the credit to be claimed on the child's tax return. In exchange, the parents are required to forgo claiming a dependency exemption for the child on their tax return.