According to Carrie Burford, Kenai Peninsula College's financial aid advisor, many students are not aware there are education tax credits available which would reduce the amount of income tax they have to pay. This also applies to parents who have dependent students claimed on their taxes.
As an eligible educational institution that participates in a student aid program administered by the Department of Education, KPC sent a 1098-T form to each enrolled student by Jan. 31. This gives students the information needed to determine eligiblilty for the education credit. The form reports adjustments made for prior years, the amount of scholarships or grants received, an accounting of reimbursements or refunds and whether the student was enrolled at least half-time.
Students who have not received this form can get a reprint by entering the "WolfLink" portal from the KPC Web site home page at www.kpc.alaska.edu and accessing UAOnline. Once there, students can select "Student Services, Financial Aid, and Account Information." Under account information they can find "Tax Notification," where they enter the tax year "2004." At this point the form can be printed.
There are two tax credits available that help offset the costs of higher education. They are the Hope credit and the Lifetime Learning credit, also referred to collectively as education credits. Sudents can claim the Hope credit based on their expenses for no more than two years. However, there is no limit on the number of years for which a student can claim a lifetime learning credit based on the same student's expenses. According to the Internal Revenue Service Web site (www.irs.gov) the differences between the two credits can be summarized by the following: Hope Credit:
n Up to $1,500 credit per eligible student.
n Available only until the first two years of post-secondary education are completed.
n Available only for two years per eligible student.
n A student must be pursuing an undergraduate degree or other recognized education credential.
n A student must be enrolled at least half time for at least one academic period beginning during the year.
n No felony drug convictions allowed on a student's record.
Lifetime Learning Credit:
n Up to $2,000 credit per return.
n Available for all years of postsecondary education and for courses to acquire or improve job skills.
n Available for an unlimited number of years.
n A student does not need to be pursuing a degree or other recognized education credential.
n Available for one or more courses.
n The felony drug conviction rule does not apply.
A tax credit reduces the amount of income tax that is due. Unlike a deduction, which reduces the amount of income subject to tax, a credit directly reduces the tax itself. The Hope and the Lifetime Learning credits are nonrefundable credits. This means the credit can reduce the income tax to zero, but if the credits are more than the tax, the excess will not be refunded.
The Lifetime Learning and Hope tax credits are based on qualified education expenses paid for the student themself, their spouse or a dependent for which a parent claims an exemption on their tax return. Qualified education expenses are tuition and certain related expenses required for enrollment in a course at an eligible educational institution. Other expenses may be eligible, depending on which type of credit is being applied for.
As with most IRS-related issues, there are many exceptions and special circumstances that must be factored in when applying for the credits. It is important to reference the IRS publication that covers these issues and-or check with a tax professional before filing the paperwork.
Burford also would like to remind people about the earned income credit (EIC). It can reduce the amount of tax due or generate a tax refund. This tax credit applies to certain people who work and the income guidelines vary depending on the taxpayers' marital status, whether or not there are dependent children, or if there is military affiliation. There is a great online tool at the IRS Web site called the EIC Assistant that helps people determine if they are eligible for the earned income credit.
This column is provided by Suzie Kendrick, community relations coordinator at Kenai Peninsula College.
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