How it may be helpful to you
| The Taxpayer Relief Act of 1997 (TRA 97) provides many new tax benefits for persons paying higher education costs for themselves and members of their families. Benefits include education tax credits, an education IRA, withdrawals from traditional IRAs for higher education expenses, and a deduction for interest paid on student loans. |  |
Tax Credits available under the Taxpayer Relief Act
Beginning with the 1998 tax year (the tax return that you file in 1999)
there are two tax credits available for higher education expenses: the
Hope Scholarship credit and the Lifetime Learning credit. Note that these
are tax credits, not deductions, and are subtracted from the amount of
tax that you may owe. They are also non-refundable, which means that if
the credits are more than your tax, the excess is not refunded to you.
The Hope Scholarship credit may be claimed for qualified tuition and related expenses (paid after January 1, 1998) of each student in the taxpayer's family who is:
- enrolled at least half-time;
- in the first two years of post secondary education; and
- is enrolled in a program leading to a degree, certificate or other recognized educational credential.
The Lifetime Learning credit became effective July 1, 1998. This
credit may be claimed for the qualified tuition and related expenses of
the students in the taxpayer's family who are enrolled in an eligible educational
institution. As with the Hope Scholarship, qualified tuition is offset
by scholarships, grants and other tax-free tuition benefits. Note that
this credit is calculated on a per family basis, not on a per student basis.
There is no requirement for half-time enrollment and no limit on the number
of years for which this credit can be claimed for each student. At SDSU,
most courses taken through Extended Studies will qualify. The maximum credit
that may be claimed is $1,000 through 2002, and $2,000 thereafter.
Income and other limitations
If your modified adjusted gross income is over $50,000 ($100,000 if
filing a joint return) you may not claim either credit. In addition, the
amount that you are eligible to claim is reduced if your modified adjusted
gross income is between $40,000 and $50,000 ($80,000 and $100,000 if filing
jointly). You cannot claim a credit if you are married and filing a separate
return. Taxpayers should consult the IRS or their tax preparers for more
in depth requirements. There will be instructions accompanying the 1998
tax forms that will explain how to calculate the credit and how to claim
it on the tax return.
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AM I ELIGIBLE? The 1098-T Form and 1098-T Supplemental Form will provide information needed to help you determine if you qualify for the tax credit. Read these forms carefully and call the IRS (1-800-829-1040) or your tax preparer if you have questions or concerns.
Student Loan interest deduction
Beginning in 1998 taxpayers who have taken loans to pay the cost of
attending an eligible education institution for themselves, their spouse
or their dependent may deduct interest they pay on these student loans.
The maximum deduction each taxpayer is permitted to take increases
from $1,000 in 1998 to $2,500 in 2001 and thereafter. The deduction is
available only for those interest payments made during the first 60 months
in which interest payments are required on the loan. 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 other recognized educational credential.
The new law poses a challenge for schools
Most schools will be challenged to meet the reporting requirements
that the Taxpayer Relief Act imposes on them. Many schools do not record
the taxpayer identification number, especially if the taxpayer is someone
other than the student. Much of the information that the schools are required
to report is not stored in a single place, requiring new internal sharing
of data. Handling the volume of questions posed by students and their families
will be an additional challenge.
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SDSU has contracted with CDSI and AFSA Data Corporation to act in partnership as our service provider. (The partnership is named Tax Credit Reporting Service, or TCRS.) This was determined to be the best way to accommodate the needs of our students and their families. Many campuses, including SDSU, have opted to supply financial data to an outside company that is better equipped to manage the tremendous workload. |
Privacy issues
The Family Educational Rights and Privacy Act (FERPA) prohibits the
disclosure of information contained in student records without the student's
written permission. However, the Compliance Office within the U.S.
Department of Education (responsible for overseeing FERPA) has determined
that TRA97 takes precedence over FERPA, and therefore educational institutions
may collect and disclose information that is required by TRA97.
Some Important Points to Consider
- If you are claimed as a dependent on your parents' (or other taxpayer's) income tax returns, it is very important that you give your 1098-T Form to them.
- A "qualified" education expense is one that can be deducted from your tax obligation. If you have paid tuition and certain registration fees, you can deduct these amounts from the taxes you owe. The amounts shown on your 1098-T Form include qualified registration fees (including registration fees paid for Extended Studies) and tuition. The Health Services fee that is part of the registration fee at SDSU is not a qualified expense that can be included in the tax credit (and it is not included in the amount showing on your 1098-T Form).
- Federal and State grants you have received are shown on the 1098-T Supplemental Form. These must be used to offset the amount you paid in "qualified" expenses. (For instance, if you paid $900 in registration fees and received grants in the amount of $900, you would not be eligible for the credit.) Although scholarships are not mentioned on the 1098-T Supplemental Form, these must be counted the same as grants. If you received a scholarship in 1998, it will reduce the amount of tax credit you are eligible for.
- Other qualified expenses you may have paid during 1998 that are not included on your 1098-T Form, but may be claimed as part of the tax credit, include:
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~Application for Admission Fee paid to SDSU
~SDSU Identification Card ~Graduation Evaluation and Diploma Fee ~Commencement Fee ~Credential Evaluation Fee ~Miscellaneous Course Charges paid to SDSU (such as Nutrition and Art-Ceramics Clay) |
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| Where to get
more information:
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~IRS Publication 970 - Tax Benefits for Higher Education ~IRS Publication 4 - Student's Guide to Federal Income Tax
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