Please Visit National Association of Student Financial Aid Administrators website for more information.
What Is It? The Hope Scholarship is a tax credit, not a scholarship. Tax credits are subtracted from the tax your family owes, instead of subtracting them from taxable income like a tax deduction. Your family must file a federal tax return and owe taxes to get this tax credit. You cannot get a refund for the Hope credit if your family doesn't pay taxes. If your family owes less in taxes than the maximum amount of the Hope tax credit for which your family is eligible, you can only take the credit for the amount you owe in taxes. Your family may claim a tax credit up to $1,500 for each eligible dependent for up to two tax years. The Hope credit is available only until the first two years of postsecondary education are complete. The exact amount of the Hope credit depends on your family's income, the amount of qualified tuition and fees paid, and the amount of certain scholarships and allowances subtracted from tuition. The total credit is also based on how many eligible dependents are in your family, rather than a maximum dollar amount for the family, like the Lifetime Learning tax credit. Who Qualifies? The Taxpayer: An eligible taxpayer must file a federal tax return and owe taxes to claim the Hope credit. In addition, the taxpayer must claim an eligible student as a dependent on the tax return, unless the credit is for the taxpayer or the taxpayer' spouse. (This means the eligible taxpayer may also be the eligible student.) You cannot claim a Hope credit if your Modified Adjusted Gross Income (MAGI) is $52,000 or more for a single taxpayer, or $105,000 or more for married taxpayers. The credit amount is gradually reduced for families with incomes between $42,000 and $52,000 if single, or $85,000 and $105,000 if married. The Student: The tax law says an eligible student must be enrolled at least half-time in an eligible program leading to a degree or certificate at an eligible school during the calendar year AND must not have completed the first two years of undergraduate study. The college can help you determine whether it meets this requirement. You may claim the credit yourself if you are not claimed as a dependent by another taxpayer. (Once again, this means that the eligible student may also be the eligible taxpayer.) Also, you must not have been convicted of a federal or state felony drug offense before the end of the tax year in which you are enrolled. How Do You Get It? To apply for the credit, the taxpayer must report the amount of tuition and fees paid as well as the amount of certain scholarships, grants, and untaxed income used to pay the tuition and fees. The law says that schools must send this information in the form of a 1098-T statement to each taxpayer and to the IRS. For tax year 2004, colleges and universities are expected to fill out all sections of IRS Form 1098-T before sending them to students. [Your school will mail this to you by January 31, 2005.] This statement from the school will also include the phone number of a person you can call at the school if you have questions. You will use this information and your own records about tuition and fee amounts you paid to fill out the IRS Form 8863 to claim the tax credit. You may wish to talk to a tax advisor for help in calculating the amount of your credit. When Is It Available? Taxpayers may pay educational expenses in a tax year for an academic period that begins following the tax year (e.g., paying in December 2004 for an academic period beginning in the first three months of 2005). Please Visit National Association of Student Financial Aid Administrators website for more information.