Financial Ad and Taxes

What’s the Issue?

There are many tax benefits when it comes to financial aid.   The Lifetime Learning Tax Credit provides a 20% tax credit for the first $5,000 of tuition and fees paid each year through 2002 and for the first $10,000 thereafter.  The Hope Scholarship Tax Credit provides a 100% tax credit for the first $1,000 of tuition and fees and a 50% credit on the second $1,000 for students in their first 2 years of postsecondary education in at least a half-time degree or certificate program.  Penalty-free IRA Withdrawals are limited to net postsecondary expenses for tuition, fees, books, equipment, and room and board.  And a deduction for Student Loan Interest paid in the first 60 months on any loan used for college expenses is available. 

How does this affect me?

A scholarship or fellowship is tax free only if:

  • You are a candidate for a degree at an eligible educational institution, and
  • You use the scholarship or fellowship to pay qualified education expenses.

Candidate for a degree.  You are a candidate for a degree if you:

  • Attend a primary or secondary school or are pursuing a degree at a college or university, or
  • Attend an accredited educational institution that is authorized to provide:
    • A program that is acceptable for full credit toward a bachelor's or higher degree, or
    • A program of training to prepare students for gainful employment in a recognized occupation.

Expenses that do not qualify.   Qualified education expenses do not include the cost of:

  • Room and board,
  • Travel,
  • Research,
  • Clerical help, or
  • Equipment and other expenses that are not required for enrollment in or attendance at an eligible educational institution.

Helpful Resources

http://www.irs.gov/publications/p970/index.html

http://www.irs.gov/individuals/students/topic/index.html

http://www.irs.gov/faqs/faq-kw70.html

http://www.irs.gov/pub/irs-pdf/p970.pdf

http://www.nasfaa.org/annualpubs/taxbenefitsguide.html

http://www.fedmoney.org/

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