IT PAYS TO LEARN ABOUT CREDITS FOR EDUCATION
By Dolores Kong
02/18/2001
The Boston Globe
To help pay for his education at the University of
Massachusetts, Boston, junior Paul Flint, 22, has been
searching on the Internet for scholarships and other
forms of financial assistance.
But as he waited in line last week at the bursar's
office, he admitted he didn't even know about some of
the most useful potential funding sources: The Hope
Scholarship, Lifetime Learning Credit, and student
loan deduction.
"Where can I find out about that?" asked Flint of West
Roxbury, who's majoring in the classics and plans a
career in information technology. "Do you have to
write an essay?"
No, there's no essay involved, but you do have to fill
out the right tax forms.
Those three ways to help ease the ever-rising cost of
education are among some of the newest - and most
commonly missed - tax deductions and credits,
according to tax and financial planning specialists.
"The IRS never had any rules that had any educational
incentives like this before," said Mark H. Kaizerman,
a certified financial planner in Natick.
Rick Siegrist, co-president of Community Tax Aid of
Boston, a nonprofit organization that provides free
tax preparation for low- income taxpayers, agreed:
"Those are important ones. If you are eligible, you
want to make sure you are claiming them."
The student-loan interest deduction and the
educational credits are so little known that Eugene S.
Tarsky, a Norwood certified public accountant, makes
it a point to mention them whenever he can.
For instance, a couple of months ago, while he was at
his doctor's for a checkup, he learned the
receptionist was studying to become a nurse. "She did
not know about these credits" and was costing herself
"somewhere around $500 or $1,000," recalled Tarsky,
who is on the public relations committee of the
Massachusetts Society of CPAs.
The federal Hope Scholarship (or credit as it is
sometimes known) of up to $1,500 can be claimed for
tuition and certain fees paid in 2000 for each student
who is attending at least half-time as a freshman or
sophomore in college or is otherwise enrolled in the
first two years of an eligible post-secondary
educational institution.
The Lifetime Learning Credit of up to $1,000 can be
claimed for tuition and certain fees paid in 2000 for
each student, whether or not that student is in a
degree-granting program, attending full- or part-time,
in graduate school, or just taking a night class at an
eligible post-secondary educational institution.
But both credits can't be claimed for the same student
in the same year. And neither credit can be claimed
for such expenses as room and board, insurance, books,
student health fees, transportation, or similar items.
There are also certain income and filing status
restrictions. For instance, if your adjusted gross
income is $100,000 or more if married and filing
jointly, or $50,000 or more if single, head of
household, or widowed, you're ineligible.
And if a student is claimed as a dependent on his
parents' return, only the parents can claim the
credit. But if a student is not listed as someone
else's dependent, only the student can claim it, even
if a relative paid the tuition on his behalf.
That quirk in who can claim the credit opens up some
financial planning opportunities, say tax and
financial specialists.
"Sometimes parents can't take it if they make too
much," said Kaizerman, the Natick certified financial
planner. In that case, if the parents don't list the
child as a dependent, "then the child can take it."
But this strategy depends on the child earning enough
income to have paid or owed taxes, since the credit is
applied against taxes.
To claim either education credit, you need to fill out
Form 8863 and carry over the calculation to the
appropriate line on your 1040 or 1040A. The form is
available at the IRS Web site, www.irs.gov, as well as
at IRS offices and some public libraries.
The other educational write-off many people miss: a
deduction for student-loan interest.
At the very bottom of the first page of 1040 or 1040A
in the section entitled "Adjusted Gross Income,"
taxpayers can deduct up to $2,000 in educational-loan
interest paid in 2000, up from $1,500 for tax year
1999. To be eligible, the student must have been
enrolled at least half-time in a degree or
certificate-granting program.
But the definition of qualified educational expenses
in this case is broader than that for the Hope or
Lifetime Learning credits, allowing not only tuition
and certain fees, but also room and board, books, and
supplies. And compared with the credits, the income
eligibility for the student-loan interest is tougher
if you're married filing jointly - less than $75,000
vs. less than $100,000 - but more generous if you're
single, head of household, or widowed - less than
$55,000 vs. less than $50,000. Other restrictions also
apply.
Massachusetts also allows up to $2,000 in qualified
educational- loan interest paid in 2000 to be deducted
on Schedule Y.
David Cesario, UMass-Boston registrar, was able to
claim one of the educational credits for the required
curriculum fees paid for his son, who's attending the
University of Massachusetts, Amherst.
Every year in late January, when people are receiving
tax-related forms, UMass-Boston sends out a form
similar to a 1099, verifying students' enrollment
status for the previous year, said Kathleen Teehan,
associate chancellor for enrollment at UMass-Boston.
Over 12,000 such forms were mailed out this year.
New students, about 900 every year, get an additional
mailing, a brochure that summarizes the average annual
cost of education at UMass-Boston, financial aid, and
such other resources as the Hope Scholarship, Merit
Scholarship, and a monthly interest-free payment plan,
Teehan said.
But the enrollment verification form that federal law
requires educational institutions to send out in late
January doesn't include much information. It's meant
to remind students or parents that they may be
eligible for a student-loan interest deduction or Hope
or Lifetime Learning credit, but doesn't include any
details and may not help much if taxpayers don't
already know about the credits.