Parents, teachers and students can get breaks at tax time

Posted: Friday, March 19, 2004

NEW YORK (AP) Teachers, college students and parents footing hefty tuition bills might find they're eligible for money-saving education credits and deductions when they fill out their federal income tax forms this year. But it's going to take some work to figure out which ones are appropriate for a given taxpayer.

''There no question but that it's complex to figure out what you qualify for,'' said Bernard Kent, a human resource services partner with PricewaterhouseCoopers LLP in Detroit.

Teachers are eligible for a deduction of up to $250 for school supplies. Parents and students can look at four possibilities: the Hope tax credit, the lifetime learning tax credit, a tuition and fees deduction and a student loan interest deduction.

As a general rule, education credits are a better deal than education deductions, Kent said.

''A credit gives you a dollar-for-dollar reduction of your tax,'' he said. ''With the deduction, it only benefits you at your marginal tax rate. So a $1,000 deduction for someone in a 25 percent tax bracket reduces your tax by just $250.''

A starting point for taxpayers is IRS Publication 970, a 71-page booklet available at government offices and the IRS Web site,

Here's what is on offer for tax filers, according to the IRS and tax experts:


Hope tax credit

A credit of up to $1,500 per student can be taken for tuition and mandatory fees for freshmen and sophomores enrolled in a college, university, community college or vocational school degree program. The student must be enrolled at least half time.

To qualify for the full credit, a single taxpayer must have an annual income of $41,000 or less; a partial benefit is available up to income of $51,000. For married couples filing jointly, the income limit is $83,000, with a partial benefit available up to $103,000. Parents can claim these credits for children who are dependents, or students living independently can claim them for themselves.

The name of the credit is derived from a Georgia scholarship program, Helping Outstanding Pupils Educationally.

Lifetime learning tax credit

Here the credit is a maximum $2,000 per family. That translates to 20 percent of tuition and fee expenses of up to $10,000 double last year's limit. It can be claimed for tuition and fees for undergraduate as well as graduate programs and for courses to acquire or improve job skills. The student does not necessarily need to be working toward a degree.

''This is especially attractive if the student is in a private school or some of the expensive public schools,'' Kent said. ''It could give them a bigger credit than the Hope.''

The income limits are the same as for the Hope tax credit, and either parents or students can claim them.


Tuition and fees deduction

Families with incomes too high to qualify for the educational tax credits can consider a deduction, said John W. Roth, federal tax law analyst at CCH Inc. in Riverwoods, Ill., which provides tax information and services.

Taxpayers cannot claim both an education credit and a deduction for the same student in the same tax year.

A deduction of up to $3,000 can be taken for tuition and fees for undergraduate or graduate study by the taxpayer, spouse or dependent. Income limits are higher than for credits. Deductions can be claimed by single filers earning up to $65,00, and by married filers earning up to $130,000.

Student loan interest deduction

People paying off their student loans used to be limited to deducting the interest on the first 60 months of payments. Now all interest payments qualify, but the maximum deduction is $2,500.

Martha Holler, a spokeswoman for college loan provider Sallie Mae, in Reston, Va., said taxpayers can claim the interest they pay on federal loans like the Stafford or the PLUS as well as private education loans. The loans must have been used for tuition and fees or other educational expenses, such as books and supplies, room and board, and transportation, she said.

''We think of the tax deduction as a dividend you receive along the way and encourage people to claim it,'' Holler said.

Individuals must earn $50,000 a year or less to claim the full deduction; it phases out at $65,000. For married couples, the income limit is $100,000, with a phase-out at $130,000.

Educator expenses

Teachers who pay out-of-pocket expenses for classroom supplies and are not reimbursed can deduct up to $250 on their IRS 1040 tax form, even if they don't itemize, said the CCH's Roth.

''It comes right off your gross income,'' Roth said. ''If you're in a 25 percent tax bracket, you'll save about $63 in taxes.''

To qualify, teachers need to save receipts, he said.

Roth noted that this is the second and last year for the special teachers deduction. ''It's up for renewal by Congress, and my guess is that it probably will get extended,'' he said.

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