NEW FOR 2003
- Education Savings Account increased to $2,000
- Education Deduction up to $3,000 (this is not a credit)
- Employer-provided Educational Assistance up to $5,250 (can double dip)
- Student Loan Interest - No limit, deduct when paid
- Teachers - Deduct up to $250 from AGI, balance on Sch A
- Educational Credit - Now use $3,000 to figure Hope credit, and up to $5,000 for Lifetime
Please note that 2001 info is being left on this page. This is a result of many filers not claiming credits and wanting to know the amounts.
If under age 24, students should compare filing by themself vs being claimed by their parents.
Are the credits available only for a child's college education?
No. The credits are available for the education of the taxpayer, the taxpayer's spouse or a dependent child.
Are all college expenses eligible for the credits?
No. Only tuition and fees, subject to scholarships.
What if a student receives a scholarship for tuition?
If the scholarship is tax-free, which is generally the case, the amount of expenses eligible for the credit is reduced by the amount of the scholarship. Example, if tuition is $5,000 and the student receives a tuition scholarship of $3,500, only the difference of $1,500 of the tuition expense qualifies for the Hope or Lifetime credit.
If the credit is for the education of the child, can the credit be claimed on the child's return instead of the parent(s)?
If the student is claimed as a dependent on the parent's tax return, only the parent is eligible to claim the credit. When the parent claims the credit, any eligible college expenses paid by the child during the year are treate as if the parent had paid them.
What if there is more than one person in the family attending college at the same time?
A Hope credit can be claimed for each person that qualifies.
May I use an IRA to pay for college?
You can withdraw funds penalty-free from your regular IRA to pay for college, including room and board costs.
How much of an academic load does the student need to carry to qualify for the credit?
To qualify for the Hope credit, the student must be enrolled on at least a half-time basis for at least one academic period during the year. The Lifetime credit can be claimed by a student who takes as little as a single course.
Are there any types of courses not eligible for the credits?
The law specifically prohibits use of the credits for courses "involving sports, games or hoppies" unless the course is part of the student's degree program.
Are the tax benefits availabe only to students attending accredited colleges?
No, the credits are also availabe for courses at trade schools. Be sure to check the school's eligibility. There are some vocational schools that don't qualify for the credit, including those that aren't eligible to participate in the federal student aid program.
Most students start college in the fall semester, which means their first two years of college will actually span three years. Can the Hope credit be claimed for each of those three tax years?
No. The Hope credit can be claimed on a student's behalf for no more than two of the three years. You will need to take the Lifetime for the third year. The Lifetime credit can be claimed for an unlimited number of years. Tax years are not always the same as academic years, and when completing tax return(s) you must use the tax year.
How much student loan intrest can be claimed, and who can claim it?
The deduction for student loan interest wiii depend on your income and does have a phaseout. Only the person legally liable for the loan can claim the deduction.
How long may student loan interest be claimed?
The student loan interest deduction can be claimed for the first 60 months that interest payments are required.
Is the Lifetime credit availabe only to undergraduate student's?
No, the credit can be used for undergraduate or graduate-level studies.
Are the credits subject to income-eligibility requirements like other tax benefits?
Both the Hope and Lifetime credits have phaseouts which depend on your filing status and income.
Do you receive $1 credit for every $1 of eligible expenses?
No. The Hope Credit will always return a much higher "credit" than the Lifetime credit.
How much will the credits actually save in taxes?
The tax credits will reduce your tax bill dollar for dollar. If you qualify for a $1,000 credit, you will save $1,000 in taxes. The credit can only be used to offset taxes you owe. If you don't earn enough income to owe any income tax, you will not be able to use the credit or get a rebate for the tax credit.
Will the education credits and income-eligibility limits be adjusted for inflation?
The Hope credit limit will be adjusted for inflation each year beginning in 2002. The Lifetime credit will not be adjusted for inflation, but the credit calculation is set to change in 2003 to 20% of the first $10,000 in expenses. This doubles the present limits, and will increase the credit from $1,000 to $2,000. Income phaseout ranges will be adjusted for inflation beginning in 2002.
Does Wisconsin allow any deduction for student loan interest?
Yes. Your student loan interest is included in your Federal income. Your Federal income is carried over to your Wisconsin return.
Does Wisconsin give any credit like the Federal Hope and Lifetime credit?
Wisconsin gives a deduction of up to $3,000 in tuition expenses. This deduction is subtracted from your Wisconsin income, which will result in a lower tax.