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,
- Clerical help, or
- Equipment and other expenses that are not required for enrollment in or attendance at an eligible educational institution.